I.
CONTRACTS BY MIXON
-
BASIC TERMS
1. Contract: a legally enforceable promise
(1) Restatement (2nd) Contracts § 1 – A contract is a promise or a set of promises for the breach of which the law gives a remedy, or
the performance of which the law in some way recognizes as a duty.
(2) Essential elements:
i.
An oral or written agreement b/t 2 or more persons – each exercising individual autonomy
ii. An exchange relationship – each party gives up something to get something
iii. At least one promise – an undertaking to act or refrain from acting in a specified way at some future time
iv. Enforceability – the disappointed party must prove that the breach of K caused fin’l loss (compensatory damages;
rarely get specific performance)
II. SOURCES OF CONTRACT LAW
1.
2.
3.
4.
Judicial opinions – Primary Authority; Precedent (Stare Decisis). Judges also take into account economic, political, social, and moral
issues when they make decisions
Statutory law (ie UCC) - many of the decisions of courts etc have been codified
The Restatements - Secondary authority, but highly persuasive. The 1st tended to emphasize generality and predictability. The 2nd is
influenced by the UCC
Legal commentary - Secondary authority.
III. CONTRACT THEORY PERSPECTIVES
1.
2.
3.
4.
5.
6.
7.
8.
I.
Sir Henry Maine: “Status  K”; As society evolves, the basis for obligations shifts from obligations based on status to ones based on K
Formalism (aka Postivism) (Classic, Williston) – cases are decided by the virtually mechanical application of rules to the facts of the
case to reach a doctrinally “correct” result. A strictly objective (law – facts – judgment) approach.
Legal realism – (Modern, Holmes) court decisions are end results of a decision making process in which both the finding of facts and the
application of rules were effected by the personalities, points of view, interests, and goals of the decision makers. (UCC)
(1) The formation of legal rules should be the result of a conscious application of all relevant knowledge of human affairs.
(2) How will the decision affect society when it goes back to the community?
(3) The decision should serve a prediction (What “is”; prediction – bias – outcome) function and a policy (What “ought to be”; social
engineering) function.
Legal positivism, aka Law and Economics (Modern, Posner) – Applies methods of economic analysis to legal issues. Economic
“Efficiency” is increased when the cost of transactions in society is reduced, and resources are allocated to their most highly valued uses.
(1) Rational Maximizers of Utility – There is an almost ethical oblig to breach a K if the economic costs of breach are < the
economic benefits of breach
(2) Since efficiency generally lead to incr in total utility/wealth/resources, inefficient rules of law should be modified in the direction
of greater efficiency
(3) Legal rules tend in general to reach efficient outcomes b/c:
i.
The marketplace depends on contracts being reasonably clear.
ii. The marketplace relies on mutual assent and the objective observer.
Relational – Trust as a public good
Justice – Subjective
Critical legal studies (the “crits”) - it is impossible to discover or develop any rational system of decision making within our legal
system as it now exists; law is an instrument of oppression
(1) Views contracts from the perspective of groups who have historically been excluded from power, & criticize traditional K rules
as instruments of the dominant economic class; gd judicial dec’ns are merely flowers on the chains that bind the oppressed
(2) “Your job is to put sand in the Xerox machines!!!” “Blow up the whole system and start over!!!”
Utilatarianism (Bentham) – statutes creates the most pleasure for people b/c they are made by a legislature elected by the people
THE OBJECTIVE THEORY OF CONTRACTS
-
FULLER’S (AKA GODFATHER OF PROMISSORY ESTOPPEL) 3 SUBSTANTIVE BASES OF CONTRACTUAL LIABILITY –
why contract’s are enforced:
1.
2.
3.
Private autonomy – individuals possess a power to effect changes in their legal relations.
(1) We need to be able to order our own affairs – the Adam Smith world
(2) Rational maximizer of utility
Reliance - the breach of a promise may work an injury to one who has changed his position in reliance on the expectation that the
promise would be fulfilled
Unjust enrichment – the injustice resulting from breach of a promise is aggravated
II. THE OBJECTIVE THEORY OF CONTRACT
1.
Manifestation of Assent
(1) “The only intent of the parties to a contract which is essential is an intent to say the words and do the acts which constitute their
manifestation of assent.” Williston
(2) Reasonable person standard – the test of a true interpretation of an offer or acceptance is NOT what the party making it thought
it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.
Page 1 of 28
Ray v. Eurice - Hillbilly builder and the architect disagreed as to what they agreed to. So when you have two parties saying they intended different
things how do you work it out? Judge uses the objective theory of contracts to determine that the contract was valid and held for π/buyer.

Unilateral (one side) v. mutual mistake (both sides):
•
Mutual mistake: If both parties to a K are mistaken about a material fact, such as the identity of the subject matter, the adversely
affected party can avoid the K ex: You think you are buying a Van Gogh, B thinks he is selling a Van Gogh, but the painting is really
a fake. Because it was a mutual mistake of a material fact, you can void the K.
Park 100 v. Kartes – Kartes was induced into signing personal guaranty of the lease by fraud – thus the contract was not enforceable (voidable) b/c
of misrepresentation. This is a subjective view of contracts. What about the reasonable person test? Shouldn’t Kartes be held to a K because any
reasonable person would expect you to read the K? Kartes was released from the K because Park 100 fraudulently induced them to sign the “K” when
they were signing the personal guaranty.
III. UNILATERAL V. BILATERAL K
1.
2.
3.
I.
Unilateral K: Where one party exchanges instantaneous performance (and hence makes no promise) for a promise of future action by
the other party. Thus, you only have one promise outstanding.
(1) Keep in mind that you are not looking for a return promise from the other party.
(2) Ex: A promises to give B $100 if B will wash my car. Once A gives $100 to B, it’s a unilateral contract. A doesn’t want B’s
promise, A wants B’s action of washing A’s car. And vice versa. If B washed car first, he doesn’t want A’s promise of $100, he
wants the $100
Bilateral K: Where, at the instant of contracting, promises remain outstanding on both sides. Thus, you have two promises outstanding
(1) A promise is exchanged for a promise.
(2) Ex. B promises to wash A’s car if A promises to pay B $100.
Executory K: A K is executory if duties remain to be performed
CONSIDERATION - R2K § 71
-
CONSIDERATION: something of value (such as an act, a forbearance, or a return promise) received by a P’or from a P’ee (quid pro quo).
1.
2.
3.
4.
5.
6.
Must be both a detriment to the promisee or a benefit to the promisor and the parties must’ve bargained for (agreed to) an exchange of
the promise for the detriment, so that each induces the other
A purely gratuitous promise – one that is not “paid for” in some way – cannot be enforced as a K
Consideration is only an issue when there is an outstanding promise to be enforced, & does not affect the validity of an executed
performance – that is, one that has already been completed
Donative Promise – promisor (1) makes an ‘unconditional’ future gift and (2) asks for & receives nothing in return. Not legally binding
Commercial Exchange – promise is so clearly purchased for an economically equivalent price, so that there is no plausible argument that
consideration was lacking
Most consideration issues lie somewhere b/t 3 & 4
II. TWO ANALYSES FOR CONSIDERATION
1.
2.
Benefit/Detriment:
(1) Benefit – “Getting what one bargained for”; R2nd§79(a) states that a gain or advantage to a promisor is not a req’t for
consideration
(2) Detriment – Relinquishment of a legal right. It can take the form of an immediate act (that is, doing or giving something), a
forbearance (refraining form something), or a the partial or complete abandonment of an intangible right. It could equally
be a promise to act, forbear, or abandon a right in the future.
Bargain-for Exchange – The performance or return promise must be sought by the promisor and given by the promisee in exchange
for the promise. The manifestation of intent” applies here – objective test applies to the determination of contractual intent (look for
apparent motive as determined by what an objective person would’ve reasonably understood)
 Benefit / Detriment (Hamer v. Sidway) – Nephew agreeing to give up the legal right to drink and smoke before his 21st birthday amounts to
consideration and thus created a bilateral executory K. Judge uses the benefit/detriment test for consideration and finds in favor of nephew.
 Bargain for exchange (Baehr v. Penn-O-Tex Oil Corp.) – There was no K here b/c there was no consideration (the forbearance to sue was never promised
and π did not actually forebear).
 Note: You may use either one of these but ask if he has a preference (argue both on the essay)
 Donative promise (Dougherty v. Salt) – Aunt makes out note so that 8 yr old nephew might be taken care of. Cardozo holds not consideration by
both parties b/c the note was a voluntary promise and she received nothing of value in return.
I.
PROMISSORY ESTOPPEL & RELIANCE §90
-
PROMISORY ESTOPPEL – The principle that a promise made without consideration may nonetheless be enforced to prevent injustice
if the promisor should have (1) reasonably expected the promisee to rely on the promise and (2) if the promisee did actually rely on the
promise to his or her detriment
Page 2 of 28
II. ELEMENTS OF §90
1.
2.
3.
4.
A Promise
Reliance – A reasonable expectation by the promisor that the promise will induce reliance AND that the promise does induce action or
forbearance (“detrimental reliance”) on the part of the promisee (this reliance must be justified)
Detriment – Injustice can be avoided only by enforcement
Remedy – may be limited to the extent of reliance (“as justice so requires”) EXTRA POINT ON EXAM
 Kirksey v. Kirksey – a promise to provide widowed sister-in-law w/ a home and land was not enforceable b/c the court held there was no consideration (note that
today, this probably would have been enforced under § 90).
 Greiner v Greiner – π/mom sued ∆/son for tract of land she had given him. Court held son had given consideration in reliance on mom’s promise; promissory
estoppel – J for ∆ affirmed. Was there § 71 consideration present here (bargained for exchange?) – Didn’t the mom want him to come?
 Wright v Newman – Were the kids his? J/π was affirmed based on promissory estoppel b/c the ct. implied a promise upon ∆.
 Allegheny College - Where one promised a charitable subscription to college on condition of its use as fund in name of promisor for scholarship and paid a
portion of such subscription, held that implied duty assumed by promisee to perpetuate name of promisor as a founder of fund was a sufficient
consideration in itself to give validity to subscription, and created a bilateral agreement.
 Katz v Danny Dare, Inc. – Poor old Katz!!!! Katz was told to retire w/ pension or be fired. Chose pension. Dare stopped paying b/c Katz found work
elsewhere. Ct. held promissory estoppel was met & J/∆ was reversed.
 Shoemaker v Commonwealth Bank – Bank promised to insure Shoemaker’s house, but let the insurance lapse and 1 year later the house burned down. Ct.
held MSJ for ∆ reversed b/c promissory estoppel was met.
•
Allen decided to play a joke on his classmate, Paul. He told several of his friends that he would make Paul an offer of $3,000 for his used car. The
vehicle had a fair market value of $1,500. The next time Allen and Paul met, Allen offered Paul $3,000 for his vehicle. Paul immediately said, “I
accept your offer. I will deliver the transfer papers to you tomorrow!” Allen said nothing.
•
When Paul presented Allen w/ the “pink slip” the next day, Allen and his friends burst into laughter. Allen said, “It was a big joke, and you fell for it!”
Paul was very upset and walked away.
•
•
•
•
Based on these facts, it is most likely that:
(a) a contract occurred b/c Paul was reasonably entitled to believe that Allen’s offer was seriously made.
(b) a contract occurred under the doctrine of estoppel b/c Paul was subjected to the ridicule of his friends.
(c) No contract occurred b/c Allen’s offer was not seriously made.
(d) No contract occurred b/c Allen had previously told his friends that the offer would not be serious.
I.
RESTITUTION / UNJUST ENRICHMENT / QUASI K
-
RESTITUTION: The act of restoring something or its value; it is a remedy
1.
2.
When a court grants restitution, it adjudges that the recipient of a benefit is obliged to give back that benefit or to pay its value to the
person who conferred it
When the elements of the cause of action, unjust enrichment, are satisfied, the remedy of restitution is the relief awarded
II. TYPES OF CONTRACTS:
1.
2.
Implied-in-law contract (QUASI K) – NOT a “real” K; it is an obligation imposed by law because of the conduct of the parties, or some
special relationship between them, or because one of them would otherwise be unjustly enriched. (Black’s)
(1) Quantum meruit – recovery of the reasonable value of services performed
(2) Quantum valebant – recovery of the reasonable value of goods delivered
Implied-in-fact contract – “real” K; a K that the parties presumably intended, either by tacit understanding or by the assumption that it
existed. (Black’s)
(1) Arises where the court finds from the surrounding facts and circumstances that the parties intended to make a contract but failed
to articulate their promises and the court merely implies what it feels the parties really intended.
(2) An actual contract which agreement is inferred from conduct rather than express words
III. UNJUST ENRICHMENT: the cause of action that gives rise to the remedy
1.
2.
3.
4.
Restatement Restitution § 1– A person who has been unjustly enriched at the expense of another is required to make restitution to them
Elements (pg 129):
(1) the plaintiff has conferred a benefit on the defendant;
(2) the defendant has knowledge of the benefit;
(3) the defendant has accepted or retained the benefit conferred and
(4) the circumstances are such that it would be inequitable for the defendant to retain the benefit w/out paying fair value for it.
Restatement Restitution § 2 – “Officious Intermeddler Doctrine” EXTRA POINT ON EXAM
(1) A person who officiously confers a benefit upon another is not entitled to restitution therefore.
(2) FN 2, pg 121 – Officiousness means interference in the affairs of others not justified by the circumstances under which the
interference takes place
(3) Thus, even though the claimants do not intend to confer the benefit gratuitously, they are not justified in imposing a benefit on
someone without asking first, so they are not entitled to restitution
Restatement Restitution § 116 – Pg 121 A person who has supplied things or services to another, although acting without the other's
knowledge or consent, is entitled to restitution therefore from the other if:
(1) He acted unofficiously and with intent to charge therefore, and
(2) The things or services were necessary to prevent the other from suffering serious bodily harm or pain, and
(3) The person supplying them had no reason to know that the other would not consent to receiving them, if mentally competent; &
(4) It was impossible for the other to give consent or, because of extreme youth or mental impairment, the other's consent would
have been immaterial
Page 3 of 28
5.
6.
7.
Restatement Restitution § 117 - A person who has preserved another’s property, although acting without the other's knowledge or
consent, is entitled to restitution therefore from the other if:
(1) He acted unofficiously and with intent to charge therefore, and
(2) He must have taken possession of the owner’s property lawfully
(3) It must not have been reasonably practical to get owner’s permission b4 conferring the benefits
(4) He must have had no reason to believe the owner did not desire him to act
(5) Owner must have in fact obtained the benefits of the expenditures
A party who is unable to recover under a K can only recover from a third party that benefited from the K if the third party hasn’t already
paid the breaching party. (Commerce v. Equity)
Generally, services rendered by family members to each other are presumed to be gratuitous, while services rendered between
individuals who are not members of the same family are presumed to be for compensation. (Watts v. Watts)
 Credit Bureau Enterprises, Inc. v. Pelo – Authorization for treatment signed under duress. P/H judgment for Π Credit Bureau b/c he benefited from
services (unjust enrichment). There was a quasi-K. Held J/Π affirmed based on unjust enrichment. A reasonable person would’ve bargained for it.
 Commerce Ptnshp v. Equity – Π had to prove that the Δ had not paid anyone; Π failed to prove this - thus J/plaintiff was reversed.
 Watts v. Watts – Facts: Not Married but Cohabitating

Plaintiff’s complaint was 12(b)(6)’d.
Held: Case remanded b/c Π stated a claim for implied-in-fact K, partition, & implied-in-law K and Δ was unjustly enriched.
I.
PROMISSORY RESTITUTION
-
TRADITIONAL/CLASSICAL VIEW OF CONSIDERATION - a promise for benefits previously received is not binding because the
benefits constituted past consideration.
II. EXCEPTIONS
1.
2.
3.
Promise to pay debts barred by the statute of limitations
Promise to pay debts discharged in bankruptcy
An adult “affirming” a contract made as a minor.
 Mills v. Wyman – Held a promise w/out consideration is not binding – it was made after the benefits were received. Cannot have past
consideration b/c it’s not bargained for.
III. MATERIAL BENEFITS RULE (MODERN VIEW; R2ND86)
1.
2.
3.
4.
The promisor has been unjustly enriched by a benefit previously rec’d from the promisee
The benefit was not given as a gift
The promisor subsequently makes a promise in recognition of the benefit
If 1-3 are satisfied, the promise is binding to the extent necessary to prevent injustice
 Webb v. McGowin – Application of the material benefit rule. Sub promise to pay $15/week is enforceable b/c a material benefit was received.
IV. LIMITS ON THE MATERIAL BENEFITS RULE (pg. 155):
1.
2.
If the promisee conferred the benefit as a gift or for other reasons, the promisor has not been unjustly enriched; or
Enforcement is to be limited to an amount proportional to the value of the benefit
I.
EQUITABLE ESTOPPEL
EQUITABLE ESTOPPEL: Relief that may otherwise be available is barred by the claimant’s unworthy conduct
1.
2.
To preclude a person from asserting a right when, by deliberate words or conduct, he has misled the other party into the justifiable
belief that the right does not exist or would not be asserted
Two components:
(1) It gen. only bars relief when the party asserting the rights deliberately engaged in the misleading behavior w/ knowledge or
reason to know it was misleading & would likely induce reliance by the other
(2) The other, unaware of the true facts, must have relied on the misrepresentation in a way that would result in some loss or
prejudice if the claimant is permitted to assert the right
I.
-
OFFER & ACCEPTANCE
-
BASIC MODEL OF OFFER & ACCEPTANCE:
1.
2.
The Offeror communicates an offer to an offeree to enter into a K on specified terms – an offer can’t take effect until it becomes known
to the offeree
The Offeror has the power to revoke the offer at any time before its acceptance, whether or not the offer states that it will be held open
for a stated time. The revocation only becomes effective when it is communicated to the offeree, either directly or indirectly. Note,
however, that if the Offeror dies b4 acceptance, the offer lapses automatically.
Page 4 of 28
3.
4.
5.
The offeree at this point has the “power of acceptance” – offeree can bring the K into existence by communicating acceptance of the
transaction on the proposed terms. Keep in mind the manifestation of assent about acceptance (objective test, not subjective)
If the offeree rejects the offer either expressly communicating such (rejection) or simply by not accepting it w/in a particular time
(letting it lapse), the offer lapses & no K arises
If the offeree is interested, but not on the exact terms proposed, the offeree may respond by making a counteroffer, which has the effect
of terminating the original offer & reversing the whole process
II. DIFF B/T OFFER & PRELIMINARY PROPOSAL:
1.
2.
3.
4.
5.
An offer creates a reasonable understanding that upon acceptance, a K will arise w/out any further approval being req’d from the
Offeror. A proposal (invitation for offer) does not.
For it to be a true offer, the terms of the offer need to be definite
In keeping w/ the manifestation of assent theme, the question is whether, taking into account the entire context of the communication,
the offeree was justified in understanding that the offeror intended to be bound on acceptance
Advertisements – the traditional rule has been that advertisements are not offers but merely invitations for offers. (see Longergan below)
“To make an offer by an advertisement there must ordinarily be some language of commitment or some invitation to take action without
further communication.” (R2C § 26, comment b) (see Longergan below)
III. MODE OF ACCEPTANCE:
1.
2.
3.
4.
5.
When the offer clearly manifests the intention that a prescribed mode of acceptance is mandatory & exclusive, the offeror’s intent must
be deferred to, & that particular manner of acceptance must be complied w/ exactly
Restatement (2nd) Contracts § 63 – Unless the offer provides otherwise, an acceptance made in a manner and by a medium invited by an
offer is operative and completes the manifestation of mutual assent as soon as put out of the offeree's possession, without regard to
whether it ever reaches the Offeror
Thus, an acceptance can be effective upon dispatch. (Mailbox rule)
Restatement (2nd) Contracts § 66 – An acceptance sent by mail or otherwise from a distance is not operative when dispatched, unless it
is properly addressed and such other precautions taken as are ordinarily observed to insure safe transmission of similar messages.
Once a K has been formed, the supervening death of a party does not terminate it unless the K expressly or impliedly contemplates that
the death of a party will terminate it.
IV. BILATERAL K:
 Longergan v. Scolnick – Π answered ad in newspaper for 40 acres, but it was sold to 3rd party before Π’s letter reached defendant. Held no offer
b/c correspondence was preliminary negotiations.
 Izadi v. Machado (Gus) Ford – J/Δ reversed b/c ad had conflicting terms, b/c it was a bait & switch, & b/c it’s necessary to deter this type of
business practice. However, usually an ad is not an offer. This decision was based on the policy of deterring bait & switch advertising.
V. UNILATERAL CONTRACTS:
1.
Traditional view: Acceptance only takes place on, & thus K not formed until, completion of performance. The offeree has no protection
from revocation while he is in the process of performing.
(1) The offeree is not bound to do the act
(2) The completion of the act is both the acceptance & the consideration.
(3) The old view of K law was that an offer was revocable by the offeror at any time before performance of the act was completed
 Petterson v. Pattberg – If Π Petterson pays off debt early, Δ Pattberg would reduce debt amount. Held J/plaintiff reversed b/c
defendant can revoke offer of unilateral K at any time b/4 performance is tendered.
2.
Modern Rule for unilateral K’s – R2ndK 45 says a K is created by tender (option) or part performance (subsidiary contract).
(1) Applies where an offer calls for performance as the exclusive mode of acceptance, so that the commencement of performance
cannot be an acceptance by promise, b/c such an acceptance is not authorized,
(2) Treats the beg or tender of performance as creating an option contract in favor of the offeree, so that the Offeror loses the right to
revoke once performance has been tendered or begun.
(3) Note: Courts may require substantial performance or part performance, not just the beginning of it.
(4) The offeror’s duty of performance under any option contract so created is conditional on completion or tender of the invited
performance in accordance with the terms of the offer.
(5)  This was done to limit the offeror’s power to revoke
VI. OPTION CONTRACTS – LIMITING THE OFFEROR’S POWER TO REVOKE:
1.
Traditional view: The old view of K law was that an offer was revocable by the Offeror at any time b4 performance was completed
 Baird v. Gimbel Brothers – Π purchased linoleum in reliance on Δ’s construction K offer. Held no K, J/Δ affirmed b/c
Δ revoked and promissory estoppel only applies to donative promises, not business transactions.
2.
Modern view (option contracts): R2ndK 87(2) – An offer which the (1) offeror should reasonably expect to induce action or forbearance
of a substantial character on the part of the offeree before acceptance and (2) which does induce such action or forbearance is binding as
an option contract to the extent necessary to avoid injustice.
Page 5 of 28
(1) Bid shopping (looking around for lower bidders) or bid chopping (attempting to renegotiate with the bidder) can destroy the
equitable claim under R2ndK 87(2).
(2) Expressly stating or clearly implying that the bid can be withdrawn may be sufficient to limit R2ndK 87(2)
 Drennan v. Star Paving – J/plaintiff affirmed b/c defendant made offer (bid) on which plaintiff reasonably relied to his detriment, even though offer
was revocable. This case is in conflict w/ Baird, but Drennan is the majority view.
I.
STATUTE OF FRAUDS
GENERAL RULE: Oral K ARE enforceable; certain types of K, however, fall outside this gen rule & must be (1) written and (2) signed
to be enforceable
II. ELEMENTS OF FRAUD:
1.
2.
3.
4.
Misrepresentation of a material fact
Intent to deceive (scienter) at time of misrepresentation
The plaintiff relies on info and is deceived
Causes the plaintiff damages
III. THREE STEP ANALYSIS
1.
2.
3.




Does the K fall “WITHIN” the statute of frauds?
(1) A contract of an executor or administrator
(2) Suretyship agreements – K to answer for the duty of another
(3) Marriage provisions – mutual promises to marry are NOT w/in this statute (those are “engagement ring” promises); valid one “If
you marry my child I will pay you $1K/month (unilateral; you’re giving up the possibility of marrying anyone else)
(4) Land contracts
(5) A K that is not to be performed w/in 1 year – The court is not concerned w/ whether completion w/in a year is practicable or
possible, but whether it is prohibited by the K (Ie On 7/1/03 you make reservations to rent a room for 7/4/04 weekend = a K that
is subject to the statute of frauds)
(6) A K for the sale of goods if the K price of the goods if > $500
If “WITHIN”, Is the K Reflected in a Writing that “SATISFIES” It’s Req’ts?
(1) A written memorandum – no particular formal req’t (ie pen note on bathroom tissue is OK; written w/ a stick on the stand of a
beach is OK)
(2) Memo must contain enough information (evidence) to show that a K has been made
(3) Signed by the party against whom enforcement is sought.
If “WITHIN” but not “SATISFIED”, does the oral K fall w/in any of its “EXCEPTIONS”?
(1) Part Performance: §129 Following an oral K, the parties may begin performance, which may provide reliable evidence that a K
was made. Even if the statute applies to the transaction, the performance satisfies the function, so that refusal of enforcement
would be too rigid & would allow a party to renege on an established K thru a tech applic of the statute; applicable ONLY to
EQUITABLE (specific perf), NOT monetary damages
(2) Promissory Estoppel: §139 (essentially §90) (Promise, Reliance, Detriment, Remedy)
 Statute of Frauds is a defense to be used against someone trying to enforce a contract (sometimes unjust!)
Failure to comply w/ the Statute of Frauds makes contract unenforceable
There is no requirement that a memorandum be communicated or delivered to the other party to the contract, or even that it be known to him or to
anyone but the signer. A memorandum may consist of an entry in a diary or in the minutes of a meeting, of a communication to or from an agent of
the party, of a public record, or of an informal letter to a third person. Where a written offer serves as a memorandum to charge the offeror,
however, communication of the offer is essential.
The signature to a memorandum may be any symbol made or adopted with an intention, actual or apparent, to authenticate the writing as that of
the signer.
 Crabtree v. Elizabeth Arden – Held memo’s from different sources re: same subject matter, one signed and one unsigned, satisfies the statute of
frauds. J/plaintiff affirmed.
 Winternitz v. Summit Hills Joint Venture – Breach of lease of pharmacy assigned to new pharmacist not enforceable b/c part performance is
applicable only to equitable relief (in oral agreements), not monetary recovery.
 Alaska Democratic Party v. Rice – No signed agreement for employment, but Π sold her house, quit her job & moved to Alaska in reliance, thus
court found part performance doctrine applies as defendant is seeking to get out of K he made. Plaintiff can override statute of frauds by clear &
convincing evidence that promise existed.
I.
INTERPRETATION
-
Gen Rule:
1.
There is NO K if:
(1) A material aspect of the agreement is lacking, AND
(2) The uncertainty can’t be resolved by the process of interpretation (evaluating the facts) and construction (applying approp. legal
rules that are used to determine presumed intent; see WARRANTIES below)
II. Types of Indefiniteness:
Page 6 of 28
1.
2.
3.
4.

Vagueness/Uncertainty: a term that is stated so obscurely or in gen language that one can’t reasonably determine what it means (maybe a
K, maybe not)
Ambiguous: a term that is capable of >1 meaning (maybe a K, maybe not)
Omitted Terms: The agreement has a gap regarding that particular aspect of the relationship (maybe a K, maybe not)
Unresolved Terms: A term that the parties have raised in their agreement, but have not yet settled (NO K yet)
Terms
 Meaning
 Intent
 Patent ambiguity – the ambiguity appears on the face of the instrument
 Latent ambiguity – arises from extraneous or collateral facts which make the meaning of a written agreement uncertain although the
language, on its face, appears clear and unambiguous.
III. Approaches to interpretation
1.
2.
3.
Objective (classic) – meaning is based on how word & actions would be reasonably perceived by the party to whom they were
manifested
(1) A speaker should always expect his words to be understood in accordance with their normal usage.
(2) Standard of interpretation of a reasonable person acquainted with the circumstances, except where it produces an ambiguous
result or a definite meaning is established by rule of law. (R1C § 230)
(3) This could result in contractual language being given that neither party intended
(4) Four principal areas of factual inquiry
i.
The express language & conduct of the parties in forming the agreement
ii. Course of Performance – their conduct in performing the K after it was formed
iii. Course of Dealing – their conduct in prior comparable transaction
iv. Trade Usage – the customs & usages of the mkt in which they are dealing w/ each other
Subjective – if the parties attributed materially different meanings to contractual language, no contract was formed.
(1) No meeting of the minds (Raffles v. Wichelhaus – the good ship Peerless).
(2) Generally, the evidence of one party concerning what she may have thought or believed is only marginally helpful or relevant.
(3) If on balancing the degree of fault of the parties, it appears that one is more accountable than the other for knowing of the
misunderstanding, a K must be found to exist on the terms understood by the more innocent party
Modified objective approach (modern)
(1) Interpreting a contract should answer two questions:
i.
Whose meaning controls the interpretation of the contract? (See R2C § 201)
ii. What was the party’s meaning? (See R2C § 202)
(2) If both parties do in fact attach the same meaning to a provision, that meaning will govern.
Joyner v. Adams – modern view of contractual interpretation. “What does development mean” A party is bound by the other party’s

meaning if the other party either knew or had reason to know of the second party’s meaning while the second party did not know or have
reason to know of the first party’s interpretation. Is the lot developed when it’s ready for building or when it’s built? (this falls under trade
usage of terms where only 1 party is a member)
IV. Rules in aid of interpretation (p. 358 & R2C § 203)
Every term should be interpreted as a part of the whole and not as if isolated from it.
An interpretation which validates or gives a reasonable, lawful, and effective meaning to all the terms in a K is preferred to an
interpretation which invalidates or leaves a part of K unreasonable, unlawful, or of no effect.
3. Specific terms and exact terms are given greater weight than general language. If the two provisions are inconsistent, the specific
provision will be deemed an exception to the general provision.
4. Separately negotiated or added terms are given greater weight than standardized terms or other terms not separately negotiated.
5. A general term joined with a specific one will be deemed to include only things that are like the specific one.
6. The meaning of a word in a series is affected by others in the same series; or, a word may be affected by its immediate context.
7. If one or more specific items are listed, without any more general or inclusive terms, other items although similar in kind are excluded.
8. Ambiguity in contract terms will be construed most strongly against the party which drafted the contract. (This usually only applies
when there was a disparity in bargaining power between the parties.)
9. The principal apparent purpose of the parties is given great weight in determining the meaning to be given to manifestations of
intention.
10. Express terms are given greater weight than course of performance, course of dealing, and usage of trade, course of performance is
given greater weight than course of dealing or usage of trade, and course of dealing is given greater weight than usage of trade.
1.
2.
Frigaliment – What is chicken? Court says the burden is on plaintiff to prove that chicken meant something other than a customary usage.

He did not meet his burden. Held that contract existed & defendant’s meaning prevailed by trade usage
I.
Terms
1.
2.
3.
PAROL EVIDENCE RULE
-
Course of performance – the conduct b/t the parties in performing a K after the writing has been executed
Course of dealing – conduct b/t the parties previous to the agreement
Trade usage (custom) – the customs & established practices in a particular trade, industry, or mkt
II. General function
Page 7 of 28
1.
2.
3.
To the extent that the parties execute a writing that is and is intended to be a final expression of their agreement, no PE may be
admitted to supplement, explain, or contradict it
However, to the extent that the writing is not a final and complete expression of agreement, consistent, but not contradictory PE may
be admitted to supplement or explain those parts of it that have not been finally expressed.
Not an evidentiary rule of law, but a substantive contract rule of law.
III. Important features
1.
2.
3.
4.
5.
Parol Evidence Rule is triggered by the written agreement – it must be in writing!!!
The writing must have been adopted by both parties
(1) Need not be signed by them both as long as it is shown to be a mutual doc.
(2) A letter written by one party & rec’d by the other w/out objection qualifies
(3) A memo written by only one of the parties and NOT disseminated to the other does NOT bring the rule into effect (DIFF FROM
SoF REQ’T!!!)
Excludes prior oral and written statements as well as contemporaneous oral statements.
Doesn’t absolutely bar all parol evidence – only trying to exclude irrelevant or concocted (false) testimony
Two stage process – while judge must make an initial finding of admissibility (what info will be permitted into evidence @ trial), the
jury must still make a ruling on credibility

Prior
Oral-No
Written-No
At K (contemporaneous)
Oral-No
Written-Yes
After
Oral-Yes
Written-Yes
IV. Integrated Agreements (RoK2nd §209)
1.
2.
3.
4.
An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.
Where the parties reduce an agreement to a writing which in view of its completeness and specificity reasonably appears to be a
complete agreement, it is taken to be an totally integrated agreement unless it is established by other evidence that the writing did not
constitute a final expression, in which case it would be a partially integrated agreement
If the writing as a whole is anything short of a complete/total integration, the PER applies to each individual term that is fully, finally, &
clearly expressed in the writing and no PER on the subject matter of that term may be admitted. With regard to other aspects of the
agreement that are not integrated in the writing (either b/c lacking or ambiguous), PE is admissible to supplement or explain the
writing, provided that it does not contradict or vary anything that has been recorded in the writing
The ct first determines whether or not we have an totally integrated agreement or partially integrated term at issue (If there is, no PE is
admitted). If it is not then the judge decides whether the evidence is admissible as supplementary PE.
V. Effect of integration
1.
2.
3.
Complete/Total (the parties intended the agreement to include all terms)
(1) Excludes evidence of contradictory terms.
(2) Excludes evidence of consistent additional terms.
(3) Does not exclude evidence needed to explain the terms already in the contract.
Partial (the parties did not intend the agreement to include all terms)
(1) Excludes evidence of contradictory terms.
(2) Does not exclude evidence of consistent additional terms.
(3) Does not exclude evidence needed to explain the terms already in the contract.
Non-integrated
(1) Parol evidence rule doesn’t apply. Evidence is only restricted by the rules of evidence for the jurisdiction.
VI. Determining integration
1.
2.
3.
Classic (Williston)
(1) Four corners rule – question of integration should be answered through the examination of the writing only. (Before looking at
extrinsic evidence, the court determines if the writing is integrated.)
(2) A merger clause is conclusive evidence that the writing is integrated.
(3) If a merger clause does not exist, then the writing should be treated as integrated, unless it appears on its face to be incomplete.
Modern (Corbin)
(1) Surrounding Circumstances - A finding of integration should always depend on the actual intent of the parties, and a court should
consider evidence of all the facts and circumstances surrounding the execution of the contract, as well as the writing, in
uncovering intent. (After considering all the evidence, in total, the court determines if the writing is integrated.)
(2) A merger clause is evidence of integration, but not conclusive.
(3) Comes close to eviscerating the PER
UCC View
(1) “the Middle Ground” use the “would certainly” rule. If the terms left out would certainly be included in the document by
reasonable parties then they must be kept from the trier of fact. Check that!!!
 Thompson v. Libby – Ct. applies the 4 corners test to exclude parol evidence of existence of a warranty of the logs. Ct. holds the K was complete
on its face. This is Williston’s test. Corbin’s test uses the intent of the parties to determine the integration of the K.
VII. Parol Evidence Rule does not apply to:
1.
Evidence offered to show that the agreement is invalid for any reason, such as fraud, duress, undue influence, incapacity, mistake, or
illegality. Take note of fraud exception – it is slippery!!!
Page 8 of 28
2.
3.
4.
5.
6.
Evidence offered to show that effectiveness of the agreement was subject to a condition precedent.
Evidence introduced to establish a collateral agreement between the parties.
Agreements, whether oral or written, made after the execution of the writing.
Evidence offered to interpret the meaning of the K; that help interpret an ambiguous k (course of perf, course of dealings, trade usage)
Some jurisdictions have held that it does not bar evidence to show that the plaintiff detrimentally relied on promises or assurances not
contained in an integrated written contract, under promissory estoppel. (Rejected by most jurisdictions.)
 Taylor v. State Farm – Az. ct applies the Corbin “intent of the parties” view of integration interpretation and determines that trial court erred in
its integration interpretation. Used extrinsic evidence to interpret ambiguous terms (allowed parol evidence).
Sherrod – “This case should be torn from the books!!!!” Held the parol evidence rule applies to fraudulent claims that directly contradict the K.
Ct. used 4 corners test of integration. The dissent said cannot be held accountable for fraudulent conduct as long as you can get other party to
sign the K. Uses the intention integration test. Dissent Should be the rule/holding
Nanakuli – JNOV reversed b/c Shell should have known of trade usage of price protection & breached good faith dealings by not providing
advanced notice of price increase. Course of performance is evidence of what the K terms were – determines the meaning of the agreement –
thus not excluded by the P.E.R. Usage can be used to “qualify” terms of K, not to “negate” them entirely.
I.
GOOD FAITH (SUPPLEMENTING THE AGREEMENT)
-
Good Faith
U.C.C. §1.203 – Oblig. of Good Faith: Every K or duty w/in this Act imposes an oblig of good faith in its performance or enforcement.
(1) Is req’d whether or not it is expressly articulated, AND even if the K expressly excludes it (thus, this obligation CANNOT BE
EXCLUDED)
U.C.C. § 1.201(19) – “Good faith” means honesty in fact in the conduct or transaction concerned.
Creates flexibility and discretion for the judge.
Requirements contracts
(1) Excessive increases and decreases in demand must meet the obligation of good faith.
(2)  The reason for the change, not the amount, is pivotal.
(3) Factors
i.
If the reason is beyond the buyer’s control, the change will likely be in good faith.
ii. Attempts to procure the requirements more cheaply elsewhere or with intent to harm the seller is bad faith.
iii. The fact that a requirements contract has become unprofitable may not be a sufficient reason.
Output contracts are likely to be treated similarly to requirements contracts
1.
2.
3.
4.
5.
Wood v. Lucy, Lady Duff-Gordon – Cardozo holds that promise to pay ½ revenues included the implied promise to use reasonable (or best)
efforts to bring in profits. Cardozo preserved consideration requirement by affirming the need for consideration.
Empire Gas v. American Bakeries – (Posner L&E) The bakery gave consideration by promising not to buy from anyone else – but the decision
not to go to propane was made in bad faith b/c no reason was given. Posner (law and economics) finds good faith is necessary.
I.
WARRANTIES (SUPPLEMENTING THE AGREEMENT)
-
Terms


Caveat emptor – buyer beware – include this somewhere in the essay when I talk about warranties
Puffery
II. Express Warranties - U.C.C. § 2-313. Express Warranties by Affirmation, Promise, Description, Sample
1.
2.
Express warranties by the seller are created as follows:
(1) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of
the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
(2) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall
conform to the description.
(3) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods
shall conform to the sample or model.
(4) It is not necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that
he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to
be merely the seller's opinion or commendation of the goods does not create a warranty.
Basis of the bargain
(1) Some courts hold it creates the requirement of reliance
(2) Other courts reject and say seller is liable on express warranty for all statements made, even if the buyer is unaware of them.
III. Implied Warranty: Merchantability; Usage of Trade - U.C.C. § 2-314
1.
Unless excluded or modified, a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a
merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the
premises or elsewhere is a sale.
Page 9 of 28
2.
3.
Goods to be merchantable must be at least such as
(1) pass without objection in the trade under the contract description; and
(2) in the case of fungible goods , are of fair average quality within the description; and
(3) are fit for the ordinary purposes for which such goods are used; and
(4) run, within the variations permitted by the agreement , of even kind, quality and quantity within each unit and among all units
involved; and
(5) are adequately contained, packaged, and labeled as the agreement may require; and
(6) conform to the promise or affirmations of fact made on the container or label if any.
Unless excluded or modified other implied warranties may arise from course of dealing or usage of trade.
IV. Implied Warranty: Fitness for Particular Purpose. - U.C.C. § 2-315
1.
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the
buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is, unless excluded or modified under the next
section, an implied warranty that the goods shall be fit for such purpose.
 Bayliner v. Crow – Ct. held no express or implied warranties b/c plaintiff failed to show evidence of any warranties.
V. Disclaimers - U.C.C. § 2-316
1.
2.
Express warranties – a disclaimer of an express warranty is inoperative if the disclaimer cannot be construed to be “consistent” with the
express warranty. The existence of an express warranty may be blocked by the parole evidence rule, though.
Implied warranties – can be disclaimed, but courts can be very finicky about word choice.
(1)  To disclaim merchantability, the sales K must mention “merchantability” and, IF in writing, the disclaimer must be
conspicuous, whether a reasonable person against whom it is to operate ought to have noticed it.
(2) To disclaim particular purpose, this must be in writing and it must also be conspicuous (no particular words though)
VI. Defenses to Breach of Warranty – pg. 494
1.
2.
3.
4.
5.
6.
Disclaimer
Lack of privity – (only for economic loss) (horizontal non-privity may not recover personal injury or property damage)
Contributory behavior
Statute of limitations
Lack of notice if results in prejudice
Parol Evidence Rule (express warranties only).
VII. Privity - The relationship between the parties to a K, allowing them to sue each other but preventing a third party from doing so.
1.
2.
3.
4.
The requirement of privity has been relaxed under modern laws and doctrines of implied warranty and strict liability, which allow a
third-party beneficiary or other foreseeable user to sue the seller of a defective product.
Vertical privity - The legal relationship between parties in a product's chain of distribution (such as a manufacturer and a seller).
Horizontal privity - The legal relationship between a party and a nonparty who is related to the party (such as a buyer and a member of
the buyer's family). They either use or are affected by the goods.
Warranties for new homes
(1) The builder must construct a house free from material defect and in a skillful manner.
(2) Types of warranties
i.
Warranty of skillful or sound construction – the manner in which the work was performed
ii. Warranty of habitability – the home will not have any major defects which render it uninhabitable
(3) The warranties may be able to be disclaimed.
(4) Most courts refuse to apply the warranty to a nonmerchant owner who sells a used home, but the original warranty will survive
the passing of title.
Caceci v. Di Canio Construction – Held J/P affirmed b/c implied warranty exists that house will be constructed skillfully & free from defects. No
more caveat emptor in home purchases.
I.
AVOIDING ENFORCEMENT: MINORITY AND MENTAL INCAPACITY
-
Terms
1.
2.
Void – Of no legal effect; null; the K ain’t no good
Voidable – Valid until annulled; capable of being affirmed or rejected at the option of one of the parties; one of the parties has the option
to say “the K ain’t no good”, or can continue enforcement.
II. Minority
1.
2.
3.
4.
B4 a minor person attains age of majority (18 in most states), he does NOT have the legal capacity to be bound in K, and the K is
voidable at the minor’s instance. He may disaffirm it @ any time b4 reaching the age of majority, or w/in a reasonable time thereafter
If, upon reaching majority, the minor expressly ratifies the K or fails to exercise the right of disaffirmance w/in a reasonable time, he
becomes fully bound
A minor’s incapacity is a purely objective fact – it is based solely on a minor’s age
Necessaries
(1) Goods or svcs reasonably needed for the minor’s livelihood
(2) Fact-based & dependent on the minor’s circumstances & std of living; may go beyond bare subsistence, as long as it is suitable
to the minor’s station in life and is not a mere luxury
Page 10 of 28
5.
6.
(3) A minor’s K for necessaries may be enforced, not as a K, but on a theory of unjust enrichment
If minor deliberately misrepresented her age & the other party, acting reasonably, relied on that misrep., a ct may fully enforce the K by
estopping the minor from asserting minority
Disaffirmance
(1) The major party must always restore in full the value of anything that he has rec’d from the minor. The minor, however, is gen.
only liable to return to the major party whatever she still has of the major’s K performance at the time of avoidance. She does
NOT have to pay the major the value of svcs or of property that has been consumed or lost
III. Mental Incapacity
1.
2.
3.
4.

The mental incapacity of a major is based purely on his subjective attributes
Competency is determined on the date the contract was formed.
There is a presumption that the person is competent. If a person is under guardianship, however, they are not deemed to have capacity
to contract.
The burden of proof is on the party seeking to avoid the contract
5.
There are two tests for voidability by mental defect - R2C §15(1)
(1) Cognitive (Comprehension) Test – 2 parts
i.
(1) Because of the mental defect
ii. (2) The person was unable to understand in a reasonable manner the nature & consequences of the specific transaction.
•
Rationale (Comment b) – Where no guardian has been appointed, there is full contractual capacity in any case unless the mental
illness or defect has affected the particular transaction: a person may be able to understand almost nothing, or only simple or
routine transactions, or he may be incompetent only with respect to a particular type of transaction.
(2) Volitional (Ability) Test – 3 parts
i.
(1) Because of the mental defect
ii. (2) The person is unable to act in a reasonable manner in relation to the specific transaction, and
iii. (3) The other party has reason to know of his condition
•
Rationale (Comment b) – Even though understanding is complete, he may lack the ability to control his acts in the way that the
normal individual can and does control them; in such cases the inability makes the contract voidable only if the other party has
reason to know of his condition.
6.
The person with a mental defect must make restitution for the FULL value of the goods or services received so long as contract is made
on fair terms and other party is without knowledge of mental illness.
•
Restatement (2nd) Contracts § 15(2) – Where the contract is made on fair terms and the other party is without knowledge of the
mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so
performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may
grant relief as justice requires.
Hauer v. Union State Bank of Wautoma – Held Bank lacked good faith b/c they knew or should have known about incompetence but still
loaned her the money. K is voidable b/c of incompetence. The incompetent is generally required to repay, except in cases of bad faith or other
special circumstances. There was some “wood-shedding” here w/ her appearance!
IV. Public policy for differentiating mentally incompetent from minors:
1.
2.
3.
Ease of determining status (minors) Objective
Opportunities for fraud (easy to fake mental illness) Subjective
Protect mentally incompetent up to the point that it becomes unfair to the public
V. Intoxication
1.
I.
Was the person so intoxicated as to not understand the nature, purpose, and effect of what he was doing, and did the other party have
reason to know of this?
DURESS
-
Duress - Policy for duress doctrine is based on the principle of the prevention of excessive gain resulting from exploitation of impaired
bargaining power.
1. Restatement (2nd) Contracts § 175 – When Duress By Threat Makes A Contract Voidable
(1) If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable
alternative, the contract is voidable by the victim.
(2) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim
unless the other party to the transaction in good faith AND without reason to know of the duress either gives value or relies
materially on the transaction.
2. Restatement (2nd) Contracts § 176 – When A Threat Is Improper
(1) A threat is improper if what is threatened is:
iv. a crime or a tort, or
v. the threat itself would be a crime or a tort if it resulted in obtaining property, or
vi. what is threatened is a criminal prosecution, or
vii. what is threatened is the use of civil process and the threat is made in bad faith, or
viii. the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
(2) A threat is improper if the resulting exchange is:
Page 11 of 28
i.
ii.
iii.
iv.


not on fair terms, and
the threatened act would harm the recipient and would not significantly benefit the party making the threat, and
the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing
by the party making the threat, or
what is threatened is otherwise a use of power for illegitimate ends.
Physical duress contracts are void.
Economic duress contracts are voidable.
II. Physical Duress = Void K – “I’ll kill you”
1.
2.
3.
This was the only duress defense available at common law – objective test
Williston – will of ordinary person overcome
Now more of a combination of objective AND subjective factors – did the victim have no reasonable alternative but to agree?
III. Economic Duress = Voidable K – “I’m not going to pay you”
1.
2.
3.
3 part test:
(1) A wrongful act or improper threat
i.
Need not be illegal. A threat can be the breach of K duty of good faith and fair dealing.
ii. Ex: threat to commit crime, criminal prosecution, litigation – if in bad faith, breach of K, threat to enter criminal
proceedings
(2) Lack of reasonable alternative
i.
Ex: of reasonable alternatives – legal action, alternative goods or services, funds
(3) Actual inducement of the K by the threat
i.
Some courts say that for economic duress, the offending party must actually cause the hardship
Reasonable alternatives that may negate duress:
(1) Legal action, if it is a viable option under the circumstances
(2) Alternative sources of goods, services, or funds
(3) Toleration when the threat is only a minor vexation
Role of plaintiff’s financial difficulty:
(1) Majority (Posner) – require that D caused P’s hardship
(2) Minority– require only that D take advantage of P’s financial hardship
Totem Marine Tug – Ct. applies economic duress doctrine (aka business compulsion) b/c Totem had to take inadequate settlement in order to
avoid bankruptcy. Remanded for trial.
I.
UNDUE INFLUENCE
-
General – To deal w/ situations in which duress was not present, but one of the parties had a particularly strong influence over the other and
abused this position of dominance to persuade the subservient party to enter a disadvantageous K
II. Restatement (2nd) Contracts § 177 – When Undue Influence Makes A Contract Voidable
1.
2.
3.
Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of
the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.
If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.
If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless
the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially
on the transaction.
III. Factors to consider for undue influence (A special relationship b/t the parties is often a significant factor for the courts.)
1.
2.
3.
4.
5.
6.
7.
Discussion of the transaction at an unusual or inappropriate time
Consummation of the transaction in an unusual place
Insistent demand that the business be finished at once
Extreme emphasis on untoward consequences of delay
The use of multiple persuaders by the dominant side against a single servient party
The absence of third-party advisers to the servient party
Statements that there is no time to consult financial advisers or attorneys
Odorizzi v. Bloomfield School District – Teacher arrested for homosexual activity had to resign from his teaching contract. Claimed
resignation was made under duress, fraud, mistake, & undue influence. Ct. held no duress, but there was undue influence (coercive
persuasion) by taking unfair advantage of another’s necessities or distress.
I.
MISREPRESENTATION AND NONDISCLOSURE
-
General – R2K §159
1.
Misrepresentation Def’n: An assertion not in accord w/ the facts. 3 types
(1) Fraudulent – the assertion is made w/ knowledge that it is false (a deliberate lie) AND w/ the intention of inducing (via deception)
the other party’s agreement. Note that the PER would NOT apply here (don’t want to encourage parties to be fraudulent)!
Page 12 of 28
Deliberate Lie (Active)
Concealment – Hiding the truth (Active)
Nondisclosure – Keeping silent (Passive)
(2) Negligent – the assertion is not a deliberate lie, but reflects a genuine, albeit erroneous, belief by the party making the assertion
b/c the party failed to check to facts that he had a duty to ascertain. Note that the PER WOULD apply here!
(3) Innocent - the assertion is not a deliberate lie, but reflects a genuine, albeit erroneous, belief by the party making the assertion.
The party is incorrect, but blameless. Note that the PER WOULD apply here!
i.
ii.
iii.
II. Misrepresentation based on false opinion or prediction
1.
2.
3.
4.
Mere puffery allowed
But if you say you have the opinion when in fact you do not – fraudulent misrepresentation
Opinion implies you do not know of any other facts that would make the opinion false
Opinion may be actionable if one giving opinion is in a:
(1) Fiduciary relationship or one of high trust
(2) An expert on matters covered by the opinion
(3) Renders opinion to one who is highly susceptible to such opinion
Syester v. Banta – J/Syester affirmed b/c fraudulent misrepresentation of opinion can exist where fiduciary relationship exists, person is expert in
the field, or the opinion is given to one who is susceptible to misrep. A L&E might argue she got what she bargained for. However, it’s not an
efficient transaction if fraud is present. –thus her utility was maximized
III. When a Misrep. Makes a K Voidable - R2K §164
1.
2.
3.
If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by the other party upon which the
recipient is justified in relying, the contract is voidable by the recipient.
If a party's manifestation of assent is induced by either a fraudulent or a material misrepresentation by one who is not a party to the
transaction upon which the recipient is justified in relying, the contract is voidable by the recipient, unless the other party to the
transaction in good faith and without reason to know of the misrepresentation either gives value or relies materially on the transaction.
Differentiated from Contractual Promise: Generally a contractual promise becomes part of a warranty, & thus the remedy for not
complying w/ the warranty is a BoK, which gives rise to the remedies for BoK, not voidability.
(1) It depends on whether the assertion was merely a statement inducing the K or was actually incorporated into the K to become one
of the promises made as part of the S’s consideration for the price of the object of the K
(2) No requirement to show intent for contractual misrepresentation.
IV. When Non-Disclosure Is Equivalent To An Assertion - R2K §161
1.
2.
3.
A person's non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:
(1) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or
from being fraudulent or material.
(2) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party
is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable
standards of fair dealing.
(3) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing,
evidencing or embodying an agreement in whole or in part.
(4) where the other person is entitled to know the fact because of a relation of trust and confidence between them.
Several courts have indicated that a party who seeks rescission because of nondisclosure must show actual knowledge by the other party
of the undisclosed fact.
Effects of a merger clause – If fraud, merger clause is no defense!!!
Hill v. Jones – Termites!!! Ct. holds parol evidence to show fraud is admissible. There is a duty to disclose in home sales, but generally there is
no duty to speak and act. Nondisclosure can be equated w/ fraud and misrep. – reversed and remanded for trial.
Laidlaw v. Oregon – Ct. holds no failure to disclose increase in price of tobacco b/c of end of the war even though buyer was unaware. Decision
reflects the ethic of individualism, requiring parties to protect their own interests by requesting information from the other party or by making an
adequate investigation before entering into a transaction. This case puts more of an emphasis on Fuller’s autonomy whereas a modern
disclosure rule puts an emphasis on unjust enrichment and reliance (instead of just relying on the fact that the seller has to disclose everything)
I.
UNCONSCIONABILITY
-
General
1.
Defined as the avoidance or reformation of a contract if, at the time of making the contract:
(1) the contract or a term unjustifiably gave an excessive advantage to one party, AND
(2) the other party has taken advantage of the first party’s dependence, economic distress or urgent needs, or of its improvidence,
ignorance, inexperience or lack of bargaining skills.
II. U.C.C. 2-302. Unconscionable contract or Clause.
1.
If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the
court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so
limit the application of any unconscionable clause as to avoid any unconscionable result.
Page 13 of 28
2.
3.
When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a
reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.
Two part test for unconscionability
(1) Procedural – Bargaining unfairness - How the deal was made.
i.
Disparate bargaining power.
ii. Lack of choice by one party or some defect in the bargaining process
iii. Overwhelming power by one
iv. Adhesion contract (A standard-form contract prepared by one party, to be signed by the party in a weaker position,
usually a consumer, who adheres to the contract with little choice about the terms.)
v. Small print
vi. Technical clauses
(2) Substantive – Unfair or oppressive terms - What the deals terms were
i.
Where the terms are oppressive, harsh, unfair, or unduly favorable to one of the parties
ii. The clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the K
iii. Ie: Excessive price
4.
Many courts hold that both aspects must be present.
(1) If there was disparate bargaining power, but the deal is fair, no unconscionability, unless the weaker party did not desire the
transaction but was unfairly persuaded to enter it
(2) Likewise, if the deal is unfair, but the parties had equal bargaining power, no unconscionability.
5.
Some courts have held that the doctrine of unconscionability is a defensive concept and may not be used to obtain affirmative relief by
way of either damages or restitution.
 A few courts have allowed damages or restitution after finding that the contract or one of its clauses was unconscionable.
Williams v. Walker-Thomas Furniture – Pro rata clause in furniture contract could be unconscionable b/c of absence of meaningful choice. Case
remanded for trial on unconscionability of pro-rata clause
I.
PUBLIC POLICY
-
Restatement (2nd) Contracts § 178. When A Term Is Unenforceable On Grounds Of Public Policy
1.
A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or
the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.
2.
In weighing the interest in the enforcement of a term, account is taken of
(1) the parties' justified expectations,
(2) any forfeiture that would result if enforcement were denied, and
(3) any special public interest in the enforcement of the particular term.
Valley Medical Specialists v. Farber – Restrictive covenant for Dr. after ending employment not enforceable b/c it goes against public policy.
VMS’s interests are outweighed by the public’s interest in access to Dr.’s services. Employment agreements that place too much restraint after
termination will not be enforced. Opinion balances autonomy of the parties w/ externalities associated with the contract. (Externalities: costs (or
benefits) borne by persons outside the agreement who are affected by it.)
R.R. v. M.H. & another – TC says hand the little fellow over. Mass. SCt. holds surrogate parenting agreement not enforceable b/c it’s contrary to
public policy. Ct. yields to adoption laws and requests more legislative help.
I.
MISTAKE
-
MISTAKE - Applies when the K is based on an erroneous belief at the time of contracting (during K formation or b4), and that belief was
caused by misinformation, not by deception (fraud), improper pressure (duress, unconscionability), or other bargaining misbehavior
1. It is confined to errors of fact, that is, to errors about some thing or event that actually occurred or existed and can be ascertained
by objective evidence
2. 5 key points to note:
(1) An error in judgment does NOT qualify as a mistake
(2) An incorrect prediction of future events is NOT a mistake. This mistake must relate to a fact in existence at the time of
contracting
(3) Mistake Doctrine is NOT concerned w/ mistaken understandings b/t the parties. Those situations are governed by interpretational
rules (ie: Raffles v. Wichelhaus; the good ship ‘Peerless’, are NOT handled via mistake, but by interpretation)
(4) The law is a fact, so that a mistake in law is covered by the Mistake Doctrine
(5) Situations that appear to call for the application of Mistake Doctrine may be more properly treated as a breach of a contractual
commitment
II. MUTUAL Mistake - R2K § 152 - When Mistake Of Both Parties Makes A Contract Voidable
1.
2.
At the time of contracting, the parties must have shared an erroneous belief concerning a fact
The erroneous fact was a basic assumption on which the K was made. The mistaken fact must be so fundamental to the shared intent &
purpose of both parties that is it reasonable to conclude that they would not have made the K at all or on the present terms had they
known the truth
Page 14 of 28
3.
4.
The mistake must have a material effect on the agreed exchange of performances. In determining whether the mistake has a material
effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise
The adversely affected party must not have borne the risk of the mistake. If the adversely affected party bore the risk of the mistake,
there can be no avoidance of the K. See the rule under R2K § 154
III. R2K § 154. When A Party Bears The Risk Of A Mistake
1.
A party bears the risk of a mistake when
(1) the risk is allocated to him by agreement of the parties, or
(2) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake
relates but treats his limited knowledge as sufficient, or
(3) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.
 Lenawee Co. Bd. of Health v. Messerly – Held that even though mutual mistake existed as to condemnation of apartment complex & that both
parties intended to transfer income producing property, the “as is” clause indicated an assumption of the risk. Thus, no rescission of the K.
 Sherwood v. Walker – The barren cow case! Ct. permitted rescission b/c there was no K as to a barren cow. Both parties were mistaken as to the
fact that the cow could reproduce. Est. the rule that mutual mistake of material fact = no K.
IV. UNILATERAL Mistake - R2K § 153. When Mistake Of One Party Makes A Contract Voidable
1.
2.
3.
4.
5.
At the time of contracting, the mistaken party must have had an erroneous belief concerning a fact
The erroneous fact was a basic assumption upon which the mistaken party made the K.
The mistake must have a material effect on the agreed exchange, adverse to the mistaken party
The mistaken party must not bear the risk of the mistake under R2K §154
The equities must favor relief for the mistake, factoring in:
(1) That the mistake be such that enforcement of the K would be unconscionable to the mistaken party, OR
(2) That the other party either have reason to know of, or be responsible for causing, the mistake,
•
In the context of § 153, “unconscionable” seems to mean only that the mistake be severe enough to cause substantial loss.
•
A mistake of wrongly predicting how profitable a contract will be is rarely rescindable.
 Wil-Fred’s v. Metro. Sanitary District – Rescission granted for Wil-Fred’s K that relied on mistaken sub-contractor’s bid. Palpable mistake must
(1) relate to material feature of K, (2) occur even though reasonable care was exercised, (3) enforcement would be unconscionable, & (4) the
other party could be placed in status quo. We can find for Wil-Fred b/c it was a mistake of fact rather than judgment AND Metro had not yet
relied on it.
V. Relief
1.
2.
3.
I.
The relief available for mistake, other than a mistake in the writing, is ordinarily avoidance, along with any restitution that may appear
appropriate.
When the mistake consists of the failure of the written contract to state accurately the actual agreement of the parties, reformation
(having the writing changed to reflect what was actually agreed to) is the usual remedy.
(1) Parol evidence rule is not a bar, but the evidence must be clear and convincing.
Some courts have denied relief when the contract contained an “as is” clause, BUT other courts have not treated the clause as conclusive.
(1) Other courts have not treated the clause as conclusive.
CHANGED CIRCUMSTANCES, IMPRACTICABILITY AND FRUSTRATION
-
Changes circumstances (IMPOSSIBILITY) (Seller’s defense)
1.
2.
The performance must be objectively impossible - No one can perform, not just the Δ
Examples
(1) Death or incapacity of person necessary for performance (R(2)C § 262)
(2) Destruction, deterioration or failure to come into existence of thing necessary for performance – es. if gds are unique (R2K§263)
(3) Prevention by governmental regulation or order (R(2)C § 264)
 Paradine v. Jane – Strict liability for contractual obligations. Jane leased land from Paradine, but was forced from it by Prince Rupert &
his army. Paradine sued for unpaid rents & ct held Jane still had to pay rents b/c a duty is owed by the K entered into. (precursor to Impossibility)
 Taylor v. Caldwell – Impossibility doctrine. Rented music hall burned down before first performance was to take place. Ct. found
Caldwell’s duty to provide the music hall should be excused b/c it was essential to the performance of the contract and the parties had contracted on
the basis of its continued existence.
II. IMPRACTICABILITY (Seller’s defense) 1.
Restatement (2nd) Contracts § 261. Discharge By Supervening Impracticability
(1) After the K was made, an event occurred, the non-occurrence of which was a basic assumption of the K
i.
IE of event: war, a natural disaster, a strike, a change in the law or gov’t regulation, etc.
(2) The effect of the event is to render the party’s performance “Impracticable,” that is, unduly burdensome
(3) The party seeking relief was not at fault in causing the occurrence
(4) The party seeking relief must not have borne the risk of the event occurring
Page 15 of 28
•
•
•
2.
A mere change in the market conditions due to such causes as increased wages, prices of raw materials or costs of construction,
unless well beyond the normal range, does not amount to impracticability. (R(2)C § 261, comment d)
In order for prices to be considered beyond the normal range, the financial burden typically has to be pretty severe.
Even if the burden is severe, it has to be from the result of a contingency that was not reasonably foreseeable at the time of the
contract. Otherwise, the party is presumed to have assumed the risk.
Relief
(1) The relief available for impracticability, is ordinarily avoidance, along with any restitution that may appear appropriate
III. FRUSTRATION OF PURPOSE (FoP) (Buyer’s defense)
1.
Restatement (2nd) Contracts § 265. Discharge By Supervening Frustration
(1) After the K was made, an event occurred, the non-occurrence of which was a basic assumption of the K
(2) The event so seriously affects the value or usefulness of the benefit that the frustrated party reasonably expected in exchange for
his performance that it frustrates the K’s central purpose for that party
i.
 Essential diff. b/t FoP & Impracticability: FoP is not unduly burdensome like Impracticability, it’s just pointless
ii. Principal purpose – The object must be so completely the basis of the contract that, as both parties understand, without
it the transaction would make little sense. (R(2)C § 265, comment a)
(3) The party seeking relief was not at fault in causing the occurrence
(4) The party seeking relief must not have borne the risk of the event occurring
i.
Substantial – The frustration must be so severe that it is not fairly to be regarded as within the risks that he assumed
under the contract. (R(2)C § 265, comment a)
IV. Common elements of Impracticability and Frustration:
1.
2.
3.
4.
Substantial reduction in the value of the contract
(1) Performance is made impracticable
(2) A party’s principle purpose is substantially frustrated
Because of the occurrence of an event, the nonoccurrence of which was a basic assumption of the contract
Without the party’s fault, and
The party seeking relief does not bear the risk of that occurrence of the event either under the language of the contract or the surrounding
circumstances

Tender Rule (buyer’s defense) – (a.k.a. mutual and concurrent constructive condition precedent). Protects buyers from obligations to deliver until
the seller tenders delivery.

Breach – failure to perform a duty at the time performance is due.
 Krell v. Henry – FoP – Δ rented room w/ a view of coronation parade, but King got sick, thus no parade & Δ did not need the room.
 Karl Wendt v. Int’l. Harvester – Holding for Wendt on all counts. Impracticability is no defense to changes in the market; FoP was Int’l.
Harvester selling supplier business, not economic downturn.
 Mel Frank Tool v. Di-Chem Co. – Storage of hazardous chemicals not a FoP b/c building was still usable for storage of other things even though it
was now illegal to store hazardous materials. Judgment for plaintiff Mel-Frank affirmed.
I.
MODIFICATION
-
Formalist (Pre-existing duty rule) – modification of K of other than sale of goods REQUIRES consideration to be binding
1.
2.
R2K § 73 – Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not
consideration; but a similar performance is consideration if it differs from what was required by the duty in a way which reflects more
than a pretense of bargain.
Exceptions
(1) Unforeseen circumstances (R(2)K § 89(a)) – a promise of modification IS binding where the change in circumstances so alters a
basic assumption of the K, that the performance of the party seeking modification becomes more burdensome than originally
expected; available even when impracticability wouldn’t be;
ii. The diff. b/t supervening difficulties doctrine and impracticability is that impracticability applies when the party
suffering from the changed circumstances has not obtained a modification of the K, but seeks to be excused from
performance altogether
(2) Reliance on modification (R(2)K § 89(c)) – When the party benefited by the promise of modification has acted to her detriment
in reliance on it, under circumstances in which it would be unjust to refuse enforcement, the doctrine of promissory estoppel
may be applied to enforce a modification fully or in part
(3) Mutual release – both parties agree to rescind old contract and create new contract w/ modifications.
Alaska Packers’ Assoc. v. Domenico – It is fundamental that promise to perform an existing obligation does not serve as valid consideration
for additional return compensation from other party. J reversed & reinstated for association b/c fishermen did not give any further consideration
for modification of K.
II. Modern (U.C.C. § 2-209) - modification of K for sale of goods does NOT require consideration to be binding
***Remember, UCC is only applicable to the sale of goods AND is subject to S.O.F.***
1.
U.C.C. § 2-209(1) – An agreement modifying a contract within this Article needs no consideration to be binding.
Page 16 of 28
2.
3.
Defenses against enforcing the modification: 1)Bad faith, 2)Coercion, 3)Duress
Potential problem - Good faith requirement applies to both parties. The party agreeing to the modification could be held to have acted
in bad faith if they only intended to repudiate it later. Some courts impose on the party agreeing to an assertedly coerced modification a
good faith duty to make plain that it is acting under protest.
Kelsey-Hayes v. Galtaco – Held Galtaco’s modification of K to supply K.H. w/ brake parts was made in duress b/c K.H. vigorously protested
against higher prices in order to put Galtaco on notice of disapproval and they had no reasonable alternative. Galtaco’s MSJ denied.
Brookside Farms v. Mama Rizzo’s Inc. - Seller did not breach requirements contract for purchase of basil leaves by demanding higher price,
as agreed in oral modifications to contract, and did not relieve buyer of its obligation to pay for minimum amount of basil it agreed to buy.
III. INTENDED V. INCIDENTAL
THIRD PARTY BENEFICIARIES (TPB)
-
1.
Incidental TPB
(1) The benefit they anticipated was purely a fortuitous & incidental result of a transaction b/t others (Mixon’s garage painting
neighbor)
(2) Have no legal rights under the K
(3) Have no cause of action to enforce the K
2.
Intended TPB
(1) Two key req’ts:
i.
K must be entered into for the deliberate purpose/intent of bestowing a benefit on the Intended TBP (“Performance
to” test; objective test), AND
ii.  K must grant the Intended TBP a power to enforce that benefit via an independent CoA
(2) Promisor (P’or) – the contracting party who is to render the performance to the TPB
(3) Promisee (P’ee) – the contracting party whose right to performance has been conferred on the beneficiary
IV. CLASSIC – CREDITOR & DONEE
1.
2.
Creditor TPB model
(1) Promisee (P’ee) owes TPB an obligation
(2) Promisee secures the promise by the Promisor (P’or) in order to secure that obligation.
(3)  Creditor TPB, b/c of power to enforce the benefit, has recourse against BOTH the P’or AND the P’ee
Donee TPB model
(1) P’ee owes no debt to the TPB, but intends to make a gift of the performance
(2) Most courts req’d that the donee and P’ee have a “close relationship” and that the P’ee have some kind of “altruistic intention.”
(3)  Donee TPB, b/c his relationship w/ the P’ee is NOT supported by consideration, has no enforceable claim against the P’ee.
He still, though, has recourse against the P’or
V. MODERN
1.
2.
3.
Restatement alters creditor / donee terms to make them more flexible
~ Creditor Beneficiary – 302(1)(a) – the performance of the promise will satisfy a monetary obligation due by the P’ee to the TPB
~ Creditor/Donee Beneficiary – 302(1)(b) - The circumstances indicate that the P’ee intends to give the benefits of a promised
performance to the TBP
VI. OTHER
1.
2.
3.
4.
5.
Whose intent controls? (Different court rulings)
(1) Both parties must intend
(2) The intent of the promisee controls – judged from the perspective of the TPB, would the TPB’s reliance on the promise be
reasonable & probable?
(3) The intent of the promisee controls as long as the promisor knows or has reason to know of the intent (modern cases).
P’ee Parallel Rights of Enforcement Against the P’or
(1) 305(1) – P’or has a duty of performance to the P’ee, even tho he has a similar duty to the TPB
(2) If full performance is NOT rendered to the TPB, the P’ee may enforce the obligation to perform any remaining balance
P’or Ability to Raise Defenses Against the TPB
(1) Proving you are an intended beneficiary only establishes your right to sue. The P’or may raise against the TPB any defense that
would’ve been available against the P’ee, arising out of a defect in the formation of the K
Vesting of the Benefit & the Parties’ Power to Modify or Terminate It
(1) When do TPB benefits vest? 311(3) –
i.
The benefit vests in the TPB when she manifests assent to it at the request of one of the parties, or
ii. She sues on it, or
iii. She materially changes her position by acting in justifiable reliance on it.
(2) If the P’or and P’ee agree to modify or discharge the K AFTER the benefit as vested, this agreement binds the parties themselves,
but it binds only them. It does NOT affect the rights of the TBP, who can enforce the performance as it vested under the original
agreement
i.
However, if the P’or and P’ee so stipulate in the K, they can retain the power to modify it or take it away even after it
has vested in the TPB. The P’or and P’ee must clearly reserve the power to alter the rights conferred on the TPB after
vesting – otherwise they lose it as against the TPB as soon as vesting occurs
Citizens’ Claims as Intended TPB of Government Ks
Page 17 of 28
313(1) – Gov’t K are to be treated the same as K by private parties in deciding whether a third party was an intended beneficiary:
The terms of the K must be interpreted in context to determine if it manifests the intent to confer a direct cause of action on the
beneficiary
(2) The gen assump is that citizens are merely incidental beneficiaries of gov’t K unless a private right of enforcement is clearly
conferred by the K or the authorizing statute, or the gov’t has a specific legal obligation to provide the performance to the citizen
(making the citizen, in effect, a creditor beneficiary)
(3) 313(2) - A P’or who contracts with a government or governmental agency to do an act for or render a service to the public is not
subject to contractual liability to a member of the public for consequential damages resulting from performance or failure to
perform unless:
i.
the terms of the promise provide for such liability; or
ii. the promisee is subject to liability to the member of the public for the damages and a direct action against the promisor
is consistent with the terms of the contract and with the policy of the law authorizing the contract and prescribing
remedies for its breach
(1)
VII. JUSTIFICATIONS FOR TPB LAW:
1.
2.
3.
4.
Efficiency – cuts down on number of lawsuits
Autonomy – promisee now can let promisor / breacher handle the repayment; TPB benefits by ability to sue either party
Reliance – promisee can rely on promisor’s promise to pay TPB
Unjust enrichment – breacher is unjustly enriched if TPB not entitled to relief (esp. in donee cases).
 Lawrence v. Fox – established Creditor beneficiaries
 Seaver v. Ransom – established Donee beneficiaries
Vogan v. Hayes Appraisal – Held that Vogans were intended TPB b/c Hayes should have known by terms of the K that Vogans would benefit from
their monitoring of construction progress.
Zigas v. Superior Ct. – Tenants are deemed intended TPB in K between HUD & landlords to keep prices low b/c the statute was for the benefit of
tenants – relief is granted.
I.
TERMS
1.
2.
3.
4.
5.
ASSIGNMENT & DELEGATION
-
Transfer - passage of title to property from the owner to another person.
(1) A transfer of rights is called an assignment
iii. The person who assigns a contractual right is the O’ee under the K AND becomes the assignor (A’or)
iv. The person to whom it is assigned is called the assignee (A’ee)
v. The other party to the K, whose duty is transferred to the A’ee by the assignment, is referred to as the O’or
(2) A transfer of duties is called delegation
i.
The person who delegates her contractual duty is the O’or under the K AND becomes the delegator of the duty
ii. The person who assumes the duty is called the delegate (not delegatee)
iii. The other party to the K, whose right to performance has been delegated, is called the O’ee
Novation – A K under which an existing contractual duty is discharged & a completely new one is substituted. The new K may include
a party who was not a party to the original K
Obligor (O’or) – someone who owes an obligation or debt under the K
Obligee (O’ee)– the one to whom the obligation is owed
Chose in Action – the rights to the thing assigned. It gives you a right to sue in the case of a breach.
II. ASSIGNMENT
1.
2.
3.
4.
5.
6.
Restatement (2nd) Contracts § 317. Assignment of a Right – 2 parts
(1) The A’or must voluntarily manifest intent to assign the right; and
i.
The right can be assigned gratuitously (meaning w/ no consideration)
(2) The right must be in existence at the time of assignment, & its transfer must take effect immediately.
 The effect of the assignment is to extinguish the A’or’s right to performance from the O’ee & to transfer it to the A’ee
Assignment is like passing a football – it is a complete transfer of right and requires all rights of control to be relinquished by assignor.
The transfer must be a complete relinquishment of the right by the A’or in favor of the A’ee, so that the A’or retains no control over it &
no power to revoke it
The A’ee is bound by any conds of performance & can’t enforce the right until any conds have been satisfied & the maturity date of the
right has arrived
Consideration doesn’t have to be given for an assignment, but it can be revoked unless certain formalities are followed
III. RESTRICTIONS ON ASSIGNMENT
1.
A contractual right can be assigned unless
(1) The assignment would violate the terms of the K (K prohibits it)
(2) Falls under 317(2)
i.
materially change the duty of the obligor
ii. materially increase the burden or risk imposed on him by his contract
iii. materially impair his chance of obtaining return performance
iv. materially reduce its value to him
Page 18 of 28
2.
(3) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy
Courts are generally reluctant to find an assignment would have a material effect on the obligor
(1) A personal services contract is the kind most likely to prevail under this challenge
(2) A requirements contract is also a kind that might prevail under this challenge.
IV. Contractual Prohibition of Assignment (Restatement (2nd) Contracts § 322)
1.
2.
3.
4.
B/c the law gen favors assignments, the contractual bar must be clearly expressed
§322 calls for a restrictive interpretation of K provisions that appear to preclude assignment.
Any doubt or ambiguity s/b resolved in favor of transferability, and a clause that prohibits “assignment of the K” should, if possible, be
taken to forbid only the delegation of duties by the A’or to the A’ee
Even if a provision of the K definitely does prohibit assignment, a ct should assume, unless contrary intent is clear, that although
assignment would be a breach (giving the O’or grounds for seeking a remedy for breach; ie damages), the transfer of rights is itself
effective
V. Interpretation Of Words Of Assignment; Effect Of Acceptance Of Assignment (Restatement (2nd) Contracts § 328).
1.
2.
3.
Unless the language or the circumstances indicate the contrary, as in an assignment for security, an assignment of "the K" or of "all my
rights under the K" or an assignment in similar general terms is an assignment of BOTH the assignor's rights and a delegation of his
unperformed duties under the contract.
Unless the language or the circumstances indicate the contrary, the acceptance by an assignee of such an assignment operates as a
promise to the assignor to perform the assignor's unperformed duties, and the obligor of the assigned rights is an intended beneficiary of
the promise.
Caveat: The Institute expresses no opinion as to whether the rule stated in Subsection (2) applies to an assignment by a purchaser of his
rights under a contract for the sale of land.
VI. Defenses Against an Assignee (Restatement (2nd) Contracts § 336)
1.
2.
3.
4.
By an assignment the assignee acquires a right against the obligor only to the extent that the obligor is under a duty to the assignor; and if
the right of the assignor would be voidable by the obligor or unenforceable against him if no assignment had been made, the right of the
assignee is subject to the infirmity.
The right of an assignee is subject to any defense or claim of the obligor which accrues before the obligor receives notification of the
assignment, but not to defenses or claims which accrue thereafter except as stated in this Section or as provided by statute.
Where the right of an assignor is subject to discharge or modification in whole or in party by impracticability, public policy, nonoccurrence of a condition, or present or prospective failure of performance by an obligee, the right of the assignee is to that extent
subject to discharge or modification even after the obligor receives notification of the assignment.
An assignee's right against the obligor is subject to any defense or claim arising from his conduct or to which he was subject as a party or
a prior assignee because he had notice.
VII. Rights of the Parties after Assignment
1.
2.
3.
VIII.
Rights of the Assignee – The assignee steps into the shoes of the assignor and thus can directly enforce the contract and will have any
claims or defenses that the obligor has that arise out of the contract.
Rights of the Obligor – The obligor may assert against the assignee any defense that would have been available to assert against the
assignor. If the O’or disregards the assignment and performs for the A’or, she incurs personal liab to the A’ee & will be obliged either
to perform again or to pay damages
Rights of Assignee against Assignor – If the assignee is unable to recover from the obligor, that party may try to recover from the
assignor.
DELEGATION
1.
Restatement (2nd) Contracts § 318. Delegation Of Performance Of Duty
(1) An obligor can properly delegate the performance of his duty to another unless the delegation is contrary to public policy or the
terms of his promise.
(2) In the absence of clear prohibition, delegation is allowed unless the O’ee has a substantial int in having the O’or himself perform
or control the duty
i.
Where a contract imposes on an individual the duty of personal service, that duty is almost always regarded as
inherently undelegable, unless the other party assents
ii. It has also been extended to business contracts when the promisee has a substantial interest in performance by a
particular individual.
(3) Unlike assignment, delegation does NOT result in a complete substitution of the delegate for the delegator. Unless the O’ee
agrees (either in the K or subsequently) to release the delegator from any further responsibility, he remains obligated under the K
(4) While courts are reluctant to enforce no assignment clauses, they are likely to enforce a clause prohibiting delegation of a duty.
(R(2)C § 322(1))
(5) Delegation is like passing on a cold or a catchy tune – you don’t get rid of it even though you’ve passed it on. Delegator still has
duty obligation unless he is released by obligee (novation).
Herzog v. Irace – Held for Dr. Herzog that assignment of patients settlement in P.I. claim could be properly assigned to pay medical bills. Assignor
must relinquish all control over rights assigned. If obligor pays anyone but assignee, breach has occurred and suit can be brought.
Sally Beauty Co. v. Nexxus Products Co. – Trial ct. found not assignable b/c it was a personal service K. Held assignment barred b/c implied
promise of Best to use best efforts to sell goods in Texas cannot be assigned to a direct competitor in the same market. Posner dissents (pg. 738) b/c
no conflict of interest, just business.
Page 19 of 28
I.
CONSEQUENCES OF NONPERFORMANCE - BREACH
R2K § 235. Effect Of Performance As Discharge And Of Non-Performance As Breach
1.
2.
Full performance of a duty under a contract discharges the duty.
When performance of a duty under a contract is due any non-performance is a breach.
II. Nature of Breach
1.
Four questions to ask
(1) Gotta determine the existence & content of the contractual undertaking to ascertain the exact nature & extent of the promise that
was made
(2) Gotta establish the date that the promised performance fell due. A breach cannot occur until the time arises for the party’s duty to
render it. Also, if the performance is subject to a condition precedent, it is not due until the cond. is satisfied
(3) Gotta decide if the performance complied w/ the promise. Any shortfall from the promised performance is a breach
(4) If a breach did occur, gotta decide on the severity of the breach and on the promisee’s rights in reacting to the breach
III. Terms
1.
2.
3.
4.
5.
Holder in due course – purchaser of the note – can recover against a 3rd party for amount of note even if seller of note has failed to
tender to 3rd party.
Condition – an occurrence of an event.
Dependant covenants – no breach until one tenders so as to put the other in default. Requires mutual & concurrent constructive
conditions precedent. The law of dependant covenants is an agreed exchange w/ simultaneous performance.
Independent covenants – promise where performance is not dependant upon performance of the other side.
Substantial performance – satisfies the condition precedent & nonbreaching party must perform as though it had been met.
IV. Quick summary
1.
2.
3.
If breach is Total AND Material – Promisee may:
(1) W/hold performance.
(2) Terminate the K (nonbreaching party’s duties are immediately discharged)
(3) Claim full damages for breach
If breach is Material but NOT Total (Partial) – Promisee may:
(1) Suspend performance (cannot terminate the K)
(2) Await cure
(3) Claim compensation for any loss suffered
(4) BUT their duties are not immediately discharged.
If breach is NOT Material (aka Substantial performance; Partial): Promisee may:
(1) Claim compensation for any loss suffered
(2) BUT nonbreaching party must continue perform as if the condition precedent has been met. (Ie: Cannot suspend performance!)
V. Substantial Performance –
1.
2.
3.
Each party’s duty of performance is implicitly conditioned on there being no uncured material failure of performance by the other party.
Minor or immaterial deviations from the contractual provisions do not amount to failure of a condition to the other party’s duty to
perform.
Even a minor deviation will give the other party a right to recover damages for that nonperformance, but those damages may be
negligible.
VI. Determining the effect of breach
1.
R2K § 241 - Circumstances Significant In Determining Whether A Failure/Breach Is “Material”
(1) the extent to which the injured party will be deprived of the substantial benefit which he reasonably expected;
(2) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(4) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances
including any reasonable assurances;
(5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and
fair dealing.
2.
When an uncured material breach by one party occurs, this is treated as the nonoccurrence of a (constructive) condition to the other
party’s duty to render any performance not yet due, and performance by that party may therefore be suspended until the breach is cured
(R2K § 237).
(1) The materiality of the breach is to be decided in light of the factors listed in R(2)C § 241, pg. 758.
(2) When a material breach becomes total, under the rule of R(2)C § 242 it has the effect of:
i. discharging the other party’s remaining duties of performance, AND
ii. permitting that party to proceed immediately to pursue a claim for total breach.
3.
Some federal courts have employed a somewhat different, four-factor test for determining the materiality of a breach
(1) Whether the breach operated to defeat the bargained for objective of the parties;
(2) Whether the breach caused disproportionate prejudice to the nonbreaching party;
Page 20 of 28
(3) Whether the custom and usage consider such breach to be material; and
(4) Whether the allowance of reciprocal nonperformance will result in the accrual of an unreasonable and unfair advantage.
•
Stock phrases in a contract (i.e., “time is of the essence”) will not necessarily mean that any delay in performance must be
deemed material; such phrases are to be considered along with other circumstances.
4.
R2K § 242 - Circumstances Significant In Determining When Material breach becomes “Total” & thus Remaining Duties Are
Discharged
(1) In determining the time after which a party's uncured material failure to render or to offer performance discharges the other
party's remaining duties to render performance, the following circumstances are significant:
i. those stated in § 241;
ii. the extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making
reasonable substitute arrangements;
iii. the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer
to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances,
including the language of the agreement, indicate that performance or an offer to perform by that day is important.
5.
R2K § 243 - Effect Of A Breach By Non-Performance As Giving Rise To A Claim For Damages For Total Breach
(1) With respect to performances to be exchanged under an exchange of promises, a breach by non-performance gives rise to a claim
for damages for total breach only if it discharges the injured party's remaining duties to render such performance.
(2) Except as stated in Subsection (3), a breach by non-performance accompanied or followed by a repudiation gives rise to a claim
for damages for total breach.
(3) Where at the time of the breach the only remaining duties of performance are those of the party in breach and are for the payment
of money in installments not related to one another, his breach by non-performance as to less than the whole, whether or not
accompanied or followed by a repudiation, does not give rise to a claim for damages for total breach.
(4) In any case other than those stated in the preceding subsections, a breach by non-performance gives rise to a claim for total
breach only if it so substantially impairs the value of the contract to the injured party at the time of the breach that it is just in the
circumstances to allow him to recover damages based on all his remaining rights to performance.
Jacob & Youngs v. Kent – Cardozo held in favor of Π’s/builder b/c it had substantially performed its K by using a type of pipe wholly similar to what
Δ’s requested. Jacob & Youngs tender put performance obligation on Kent. Jacob & Youngs performance was a condition precedent to Kent’s
payment – Kent argues condition precedent not met. Most cases call for cost-to-complete measure of damages, but here, there was substantial
performance. Kent would have been unjustly enriched if Jacob & Youngs would have had to replace the pipe. Dissent says the K is not complete
b/c of express condition.
Sackett v. Spindler – Held that even though Sackett had assured Spindler he would perform, Spindler was entitled to breach b/c Sackett had
materially breached his K.
I.
Anticipatory Repudiation (A.R.)
-
General
1.
2.
Definition – The expected non-performance of a K giving the other party a right to act on such anticipatory repudiation (basically, one
party shows he will not perform) – may happen before or after a breach
Applies only to bilateral executory contracts, not unilateral K’s.
II. Evolution of Anticipatory Repudiation
1.
2.
Old CL didn’t recognize A.R., so the P’ee had no right to reach to an advance indication of breach. He had to wait until the time of
performance to see if breach would in fact occur. In the interim, he had to hold himself available to tender his return performance when
it fell due.
 Hochster v. De La Tour – Before time of tender came around, the D informed P that he would no longer need his services. But how
can you have the duty before the time for performance? Modern Law - Anticipatory repudiation acts as a prospective waiver of tender.
(1) Reasoning in Hochester – if the P could not bring suit, he would be required to hold himself ready to perform until the day of
performance – not able to enter into other Ks.
(2) Reasoning flawed because the Π would not have to remain ready to perform because the repudiation acts as a prospective waiver
of tender
III. Elements of Anticipatory Repudiation
1.
2.
Gen Def’n: For a prospective non-performance to constitute a material and total repudiation of the K, the P’or must clearly,
unequivocally, and voluntarily communicate, either by words or conduct, an intention not to render the promised performance when it
falls due
Three components:
(1) The prospective action/inaction indicated by the P’or must be serious enough to qualify as a Material and Total breach of the K
(2) The Promisor’s language or conduct must clearly & unequivocally indicate to a reasonable P’ee that the P’or intends to breach
Materially when the time for performance arrives
i. Doubtful and indefinite statements that performance may or may not take place are not enough to constitute A.R.
ii. Requires language that under a fair, objective reading amounts to a statement of intention not to perform
iii. Conduct that renders the obligor unable or apparently unable to perform may amount to A.R. For it to constitute an
anticipatory repudiation, however, it must indicate that performance is a practical impossibility.
Page 21 of 28
(3) The Promior’s statement or conduct in repudiating must be voluntary, that it, it must have been deliberate and purposeful, rather
than inadvertent or beyond the Promisor’s contol
•
Financial difficulty, even to the point of insolvency, does NOT constitute an A.R.. But it does constitute a ground for adequate
assurances. (see below under Adequate Assurances)
IV. Response to Anticipatory Repudiation
1.
When a repudiation has occurred, the other party has a choice b/t two alternatives:
(1) Option 1 - Accept the repudiation by treating it as an immediate breach. This entitles her to:
i. Refuse to render her own performance, AND
ii. To terminate the K, AND
iii. To sue for relief for TOTAL breach (Hochster)
(2) Option 2 – Delay responding to the repudiation to see if the repudiating party retracts her repudiation
i. Can even urge P’or to retract the repudiation by offering him a certain period of time to recant; if he fails to do so, the
repudiation will be accepted
ii. If P’ee offers P’or add’l time to recant, she may change her mind at any time b4 retraction by notifying the P’or that the
repudiation has been accepted
2.
Repudiation may be retracted: R2K § 256
(1) Prior to filing suit; or
(2) Prior to any material change of position by the other party in reliance on the repudiation.
V. Request for adequate assurances
1.
R2K § 251 & UCC 2-609. When A Failure To Give Assurance May Be Treated As A Repudiation
(1) Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the
obligee a claim for damages for total breach under § 243, the obligee may demand adequate assurance of due performance and
may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such
assurance.
(2) The obligee may treat as a repudiation the obligor's failure to provide within a reasonable time such assurance of due
performance as is adequate in the circumstances of the particular case.
2.
Reasonable grounds for insecurity
(1) Significant financial difficulties
(2) Failure to perform important obligations under the contract
(3) Failure to perform important obligations under related contracts.
(4) Sometimes, market conditions
3.
Grounds found not to be reasonable
(1) Unreliable rumors
(2) Insignificant risks
(3) Situations known when the contract was formed
•
•
•
Assurances may range from a verbal guarantee to posting a bond, depending on circumstances.
Courts are divided whether a demand must be in writing.
Failure to respond in a reasonable time (UCC says 30 days is max.) may be treated as an anticipatory repudiation.
Truman L. Flatt & Sons v. Schupf – Held for Π/buyers b/c their repudiation was retracted before Δ/sellers accepted it or changed their position in
reliance on it.
Hornell Brewing Co. v. Spry – K for supply of tea. Held that a failure to give adequate assurances gives supplier the right to anticipatorily
repudiate the contract.
EXPRESS CONDITIONS
-
I.
-
BASIC TERMS
1.
2.
3.
4.
5.
Promise: An undertaking to act or refrain from acting in a specified way at some future time.
(1) If the promise is broken, it’s a breach
Condition: An event that is not certain to occur.
(2) Conditions agreed upon by the parties to the K
(3) The contingency need not be an affirmative happening. It could also be a negative contingency - a non-happening
(4) If a cond. is intended to relate only to the performance of one of the parties, that party can choose to perform despite its
nonoccurrence & may fully enforce the K against the other. But if the cond. relates to the K as a whole, its non-occurrence
discharges the right of both parties to demand performance, and neither can unilaterally waive it.
A promised performance under a K is subject to a condition IF the parties agree that the performance is contingent on the occurrence
of the uncertain event
(1) The passage of time is NOT regarded as a condition
Pure Promise: No conds. at all, but merely undertakings
Pure Conditions: They contain no promise but merely describe an even that must occur for a duty of performance to arise
Page 22 of 28
6.
Promissory Conditions: A term that is both a cond. AND a promise that a cond. will occur
II. EXPRESS, IMPLIED & CONSTRUED CONDITIONS
1.
Express Cond.: If the language of the K, on its face & w/out ref to extrinsic evidence, articulates the intent to make performance
contingent on the event
(1) An express condition is a provision the fulfillment of which creates or extinguishes a duty to perform under a K. If an express
condition is not performed, then there is no duty of immediate performance. (COMPARE TO “PROMISE” IN ‘I’ ABOVE)
(2) Must be unambiguous - typical conditional language: “on cond. that,” “subj. to,” “provided that,” “if,” “unless,” & “until”
(3) If the language is at all doubtful, most courts will interpret as a promise – especially when there is a risk of forfeiture
(4) It is NOT enough that the term itself is expressed. Its conditional nature must also be apparent from the language used.
(5) There must be strict compliance w/ an express cond.; substantial perform. is NOT good enough!!!
(6) R2K 229 provides that to the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may
excuse the non-occurrence of that condition unless it was material. See J.N.A. Realty.
2.
Implied in Fact Cond.: Where contextual evidence may support the inference that the parties intended a performance to be
conditional.
(1) A ct may have some gtr flexibility in interpreting an implied cond. in a way that avoids the harsh results that would’ve been more
inevitable had the cond. been clearly expressed.
(2) Could be some PER issues
3.
Constructive Cond.: Although there may be no evidence that the parties actually agreed to the cond., a ct will imply it as a matter of
law if the circumstances & nature of the K compel the conclusion that the cond. should exist as a matter of policy, or that if the parties
had addressed the issue, the reasonably would have intended it to be part of their K.
(1) In an exchange transaction, unless the language of the K or its surrounding circumstances clearly indicate a contrary intent, the
parties must almost always be taken to have expected that the principal promises exchanges would be dependent on each other –
that they would be what are known as constructive conditions of exchange.
(2) Constructive conds., unlike Express conds. can be satisfied by substantial performance
 J.N.A. Realty v. Cross Bay Chelsea – Held express cond. not material to K and equitable relief demanded that the restaurant be able to renew
lease even though the failure to timely do so broke express cond. A forfeiture of improvements and business equity would have otherwise resulted.
III. CONDITIONS PRECEDENT & CONCURRENT CONDITIONS & CONDITIONS SUBSEQUENT
1.
2.
3.
4.
Condition Precedent: A cond. that must be fulfilled before a duty to perform comes into effect
Concurrent Conditions: If the performances are capable of being rendered simultaneously, they are due at the same time. If one party
is available to tender performance but the other can or will not, the tendering party is excused from delivering his performance & may
sue for breach
If the performances are not capable of being rendered simultaneously b/c one of them requires a period of time to perform & the other
can be rendered instantly, the gen. presump. is that the performance that takes time must go first and be concluded before the
instantaneous one is due (the longer one is a cond. precedent of the instantaneous one)
Conditions Subsequent: terminates a duty that came into existence when the K was formed
IV. CONDITION OF SATISFACTION (Interpretation of Conds. of Satisfactory Performance)
1.
2.
Objective Std: traditionally used in cases where commercial quality, operative fitness, or mechanical utility are in question. The
question is whether the party is reasonable in being dissatisfied
Subjective Std: likely to be employed where personal aesthetics or fancy are at issue. Where personal services are involved, the court
may be more likely to approve the use of the subjective test. The question is whether the party’s dissatisfaction is honest & genuine
(“good faith” test)
Morin Building v. Baystone Const – If the K is clear, enforce the terms. If K is ambiguous, use a reasonable person std based on the
assumption that the parties probably would’ve agreed to a req’t of reasonableness if they had negotiated specifically about it. The architect’s refusal
here was unreasonable, thus judgment for the Π aff’d b/c the K called for Δ’s approval, but meant approval of a reasonable person, not the Δ himself.
 Oppenheimer v. Oppenheim – Oral fulfillment of express condition requiring written fulfillment was NOT fulfillment of express condition as
there is no substantial performance in express conditions and the Δ does not give or receive any benefit or forfeiture. Absent forfeiture, express
conditions are enforced as written
V. EXCUSE OF CONDITIONS
1.
2.
Where the duty of one party is subject to the occurrence of a condition:
(1) That party must make a reasonable or good faith effort to attempt to bring about cond.
(2) That party has an Oblig. Of Fair Dealing: Can’t engage in any obstructive conduct to try and prevent cond. from coming about
Estoppel or Waiver
(1) Estoppel: Preclude a person from asserting a right when, by deliberate words or conduct, & w/ knowledge or reason to know that
the words or conduct will likely be relied on by another, the actor causes the other party detriment by inducing the justifiable
belief that the right does not exist or that it will not be asserted.
iii. In the context of conds, the party who is the beneficiary of the cond. may be estopped from claiming its non-fulfillment
if, by her words or conduct, she induces the other party to act to his detriment by causing him justifiably to believe that
the cond. has been satisfied, or that compliance w/ it will not be req’d
Page 23 of 28
Waiver: After K is made, the beneficiary of a cond. agrees to perform even if the cond. is not satisfied. One of the parties
unilaterally gives up a contractual right w/out asking for or rec’g anything in exchange (diff from a K modification, which is a K
in itself and requires consideration)
iv. Gen rule: If the right to be given up involves a material right under the K, it cannot be validly relinquished by a
unilateral waiver. It’s abandonment must be exchanged for consideration via a fully-fledged contractual modification
v. If non-material right, however, the consideration req’t is dispensed w/ & it can be validly waived
vi.  Keep in mind that under UCC 2.209, K modification does NOT require consideration
(3) Retraction of Waiver:
vii. B/c a waiver is NOT supported by consideration, a waiver made prior to the due date for the cond.’s fulfillment CAN
be retracted unless:
1. Notice of the retraction is not rec’d by the other party in time to allow him to take any action necessary to
bring the cond. about, OR
2. If he has taken detrimental action in reliance on the waiver
Forfeiture:
(1) Gen, forfeiture is an appropriate basis for excusing a cond. only if its enforcement would result in an unfair, disproportionate,
& harsh deprivation of the rights or property of the party who expects performance, and a windfall or unfair benefit to the
party whose performance is subj. to the cond.
(2) R2K §229 – Excuse of a Cond. to Avoid Forfeiture – allows the ct to disregard an express cond. of a technical or procedural
nature where the strict enforcement of the cond. would have the unfair impact described above. It is not to be used if the
occurrence of the cond. is a material part of the exchange. See J.N.A. above
(2)
3.
EXPECTATION DAMAGES / EFFICIENT BREACH / MITIGATION
-
I.
-
EXPECTATION DAMAGES - Generally
1.
2.
3.
UCC §1.106: The goal is to place the victim of a breach in the position she would have been in had no breach occurred; to protect the
Π’s expectation interest; of giving the Π the benefit of the bargain;
(1)  BUT we’re not going to put you in a better position than you would’ve been in had the Δ performed & the breach not occurred
K law generally compensations only for economic injury – there is usually no sanction for a breach that causes no economic loss
Efficient Breach (Posner): A breach of K is said to be efficient if the Δ’s cost to perform would exceed the benefit that performance
would give to both parties (Rockingham Cnty v. Luten Bridge)
(1) Problem is that it doesn’t take into acc’t neither important non-eco values (morality, reliability, fair dealing, or faithfulness), nor
those consequences of breach that are not measurable in economic terms (inconvenience, disappointment, or frustration)
(2) Also, the transaction costs involved in terminating the K and making substitutes must be small enough to as not to eliminate any
advantage achieved by the breach
II. EXPECTATION DAMAGES – Calculation
1.
2.
3.
4.
5.
Key Point: When deriving Expectation Damages, we’re trying to calculate the diff b/t what the Π had the (1) right to expect and (2)
what she actually got
General Calc: (1) = (2) – (3)
(1) Damages =
Π’s loss in value caused by the Δ’s non-performance (aka K to Mkt Costs)
(Determined by deducting the contractual value of
what the Π rec’d from what she was promised)
(2) .
+
Any other loss (incl’g consequential and incidental damages) (Cover costs are incidental costs)
(3) .
Any cost or loss the Π avoided by not having to perform
(4) .
For cases involving a Substitute Transaction made by the Π (GOODS)
(1) UCC §2.712: The Buyer’s damages is the diff b/t the cover (repurchase) price and the K price
(2) UCC §2.706: The Seller’s damages is the diff b/t the K price and the lower resale price
•
Requires resale or cover to be w/out unreasonable delay and on reasonable terms
If case involves K in which breach results in loss income that cannot be recouped (can’t find reasonable substitute or replacement),
damages may be equivalent to the full value of expected performance, less any direct or variable costs that can’t be saved by breach
General Calc (Partial Performance)
(1) .
Gross Profit (Total K price – direct costs)
(2) +
Reliance expenditure
(3) Payments or proceeds
(4) +
Other loss (consequential or incidental damages)
III. EXPECTATION DAMAGES – UCC
1.
2.
Seller’s Remedies (no consequential damages allowed)
(1) 2-702: S’s Remedies on Discovery of B’s Insolvency
(2) 2-703: S’s Remedies in Gen.
(3) 2-708: S’s Damages for Non-acceptance or Repudiation
(4) 2-710: S’s Incidental Damages (aka ‘Clean-Up Costs’); NOTE: No Consequential damages for S!!!
Buyer’s Remedies
(1) 2-711: B’s Remedies in Gen.; B’s Security Int. in Rejected Goods
(2) 2-712: “Cover”; B’s Procurement of Substitute Goods
(3) 2-713: B’s Damages for Non-Delivery or Repudiation
Page 24 of 28
(4) 2-714: B’s Damages for Breach in Regard to Accepted Goods
(5) 2-715: B’s Incidental (aka ‘Clean-Up Costs’) AND Consequential Damages (Foreseeability)
 Turner v. Benson – the proper measure of damages against a breaching vendee in a R/E claim is the diff in the K price & the FMV of the prop.
at the time the K was breached; all damage except daycare were normal & foreseeable & w/in the contemplation by the parties
 Handicapped Children – An e’er who has obtained an e’ee at a higher price upon breach of an employment K may recover the diff
 American Std - Only where the cost of completing the K would entail unreasonable eco. waste (ie J&Y v. Kent) will the measure of damages for
breach of construction K be diminution in value of the prop in relation to what the value would’ve been if the prop had been completed
IV. EXPECTATION DAMAGES – Limitations on Recovery (Foreseeability / Mitigation / Lost Volume / Causation /
Certainty)
1.
Foreseeability: Damages are (2) foreseeable when, (1) at the time of making the K (NOT at the time of breach), the (3) party who
ultimately breached reasonably s/h (4) realized/known that those (2) type of damages would be a (5) likely/probable consequence of the
breach
(1) A breach could have consequences beyond the actual deprivation of the contracted performance b/c other transactions or ventures
are dependent upon it. Unless the other party has reason to know that her breach will have an impact beyond the simple
deprivation of the immediate K performance, it is not fair to hold her accountable for such consequential losses.
(2) Two types of foreseeability damages
i. General Damages (Direct): Those consequential damages that should be obvious to the breacher w/out any special or
particular knowledge of the other party’s circumstances or affairs, b/c such a loss would be a normal & well-accepted
likelihood of the breach of K of this kind
ii. Special Damages (Consequential): Unless the breacher was told or otherwise had reason to know about the special
circumstances at the time that he made the K, it would not be fair to hold him liable for damage to it b/c he had no
basis for expecting this loss
 Hadley v. Baxendale – Π couldn’t get lost profits (consequential damages) b/c ‘special circumstances’ weren’t clearly communicated to Δ
 Florafax v. GTE – Lost profits from a collateral, or 3rd party K, are properly recoverable from a BoK claim. GTE knew about Florafox’s K w/
Bellerose & knew Florafax was depending on GTE call center svc
 Landa Cotton Oil – If you get expectation damages, you don’t get reliance damages
2.
Mitigation: The avoidance or reduction of loss following a breach of K
(1) If the Π has, thru bad faith or unreasonable action (or inaction) aggravated her damages, the Δ is not held responsible for the incr.
in loss caused by the Π (commonly called ‘duty to mitigate’ but s/b called ‘avoidable damage rule’)
 Rockingham County v. Luten Bridge – Although the county breached the K, Luten s/h stopped work on bridge after it had rec’d notice of the
breach. I/s/o continuing work on the bridge, Luten s/h immediately sued for recovery of damages (non breaching party can’t pile on damages)
3.
Lost Volume Seller (UCC 2-708(2) and R2K§350 comment d)
(1) The mere fact that an injured party can make arrangements for the disposition of the gds or svcs that he was to supply under the
K does NOT necessarily mean that be doing so he will avoid loss. If he would’ve entered into both K’s but for the breach, he
has “lost volume” as a result of the breach. In that case the second transaction is NOT a “substitute” for the first one.
(2) The S is entitled to recover its full profit expected under the breached transaction
 Jetz Svc v. Salina Properties – Jetz could’ve provided washers to both Salina and other customers at the same time, so just b/c they found a
replacement for Salina didn’t prevent them from getting Total Lost Profits from Salina; no duty to mitigate damages since a lost volume Seller
4.
Causation:
(1) There must be a link b/t the breach and the loss
(2) Not usually a problem for General/Direct damages, but can be more difficult for Special/Consequential damages
5.
Reasonable Certainty:
(1) The evidence must be sufficient to persuade the factfinder that the loss is more likely to have occurred than not, and must give the
factfinder enough basis for calculating a monetary award
RELIANCE DAMAGES
-
I.
-
GENERAL
1.
2.
Reliance damages aim to refund expenses wasted or equivalent losses by the Π in reliance on the K, thereby restoring her to the status
quo ante – the position she would’ve been in had no k been entered into.
(1) No reliance damages can be recovered for expenses incurred prior to signing the K
If the Π cannot prove that he would have made a profit on the K had it been fully performed, he cannot claim expectation damages for
a loss of profit. He is nevertheless still entitled to recover the essential reliance component of his damages actually spent in performing.
Page 25 of 28
II. RELIANCE Damages – Essential and Incidental
•
No matter how reliance expenses are classified, the basis of awarding reliance damages is waste. The exp. or loss must cause prejudice
to the Π in that something of value has been wasted and cannot be salvaged.
1.
Essential/Direct Reliance Damages:
(1) Def’n: The cost or exp. incurred in performing duties required by the K
(2) The gen. rule is that when the Δ can prove (burden of proof is on the Δ) that the Π would’ve suffered a loss in the event of
complete performance, the Π’s reliance damages should be cut back to bring his recovery into line w/ his expectations
i. Gen., the loss is prorated, to reduce the recovery of expenses by a % of total loss = to the ratio of exp. incurred to total
expenses.
ii. However, reliance exp. s/n be reduced if the purpose of the K was not to make a profit
2.
Incidental/Consequential Reliance Damages:
(1) Def’n: The cost or exp. incurred in consequence of having made the K and for the purpose of enjoying or using a benefit
reasonably expected from the K
(2) Can also be in the form of a lost opportunity or other gain sacrificed
(3) Is only recoverable if the Δ foresaw or reasonably should’ve foreseen the possibility of loss or expenditure being incurred, and
both the amount and nature of the loss or expenditure were reasonable
 Wartzman v. Hightower Productions – Wartzman (att’y) messed up Hightower’s stk security offering; Hightower granted reliance damages, but
not expectation damages (those were too uncertain to reasonably calculate)
 Walser v. Toyota – Walser granted reliance damages, but not expectation damages, for Toyota retracting promise of dealership
 Armstrong. – In a reliance damage case, if Δ can show a loss, that’ll place limits on your reliance damages
RESTITUTIONARY DAMAGES
-
I.
-
GENERAL
1.
2.
Restitution seeks to return to the Π the value of any benefit unjustly conferred on the Δ under the breached K. It focuses not on the Π’s
expectation or expenditure, but on the extent of the Δ’s enrichment at Π’s expense
If the Π seeks restitution, he proceeds on the basis that the breach ended the life of the K, so that the Δ is no longer justified in retaining
the benefit of any performance that the Π rendered to the Δ under it, & the value of that performance unjustly enriches it
II. RESTITUTIONARY - Damages
1.
2.
Market value restitution is the preferred measure of value, but sometimes the recipient’s net gain is more appropriate
Exception: As long as the S remains ready, willing, & able to perform a K for the sale of real property, the breaching B has no right to
restitution of payments made prior to default
III. RESTITUTIONARY – Full Performance Exception
1.
If the nonbreaching party has fully performed his obligations under the K and the breaching party’s only remaining duty of performance
is the payment of $, the nonbreaching party may not elect restitutionary recovery but is limited to expectation damages
 Coastal Steel Erectors v. Alernon Blair – Δ wouldn’t pay for Π’s crane rental = BoK; Π entitled to recover the value & eqp furnished, even if he
would’ve lost $ on the K – otherwise the Δ is unjustly enriched
 Lancellotti v. Thomas – A breaching party IS entitled to restitution in excess of the loss caused by his breach, otherwise it would allow a windfall
to the non-breaching party, esp. if breach occurs near the end of the K
SPECIFIC PERFORMANCE
-
I.
-
GENERAL
1.
2.
3.
Damages are the primary form of relief for BoK, and specific performance is reserved as an extraordinary remedy
UCC§2.709 (S’s action for the price)
UCC§2.716 (B’s remedy for specific performance)
II. PREFERENCE FOR DAMAGES OVER SPECIFIC PERFORMANCE
1.
2.
3.
4.
In many cases it is simply more efficient to award damages. It is only when there is no reasonable possibility of acquiring a substitute or
no reasonable prospect of being able to establish or collect a $ award that specific performance becomes a preferable remedy.
(1) Exception: Buyer or lessee or real property can gen. obtain specific performance on the basis that damages would be inadequate,
b/c the CL has long assumed that land is unique
(2) The opposite assumption applies to goods. Under UCC §2.716, a B is relegate to a claim for damages and can’t get an order
compelling the S to perform unless he can show that the goods are unique or that the circumstances otherwise justify the order
It could be unnecessarily intrusive and harsh to force the Δ to perform as promised
The Constitutional bar on involuntary servitude precludes a ct from ordering specific performance of a K for personal svcs
Practicality of enforcement – problems of supervision may arise, esp. since Δ may only perform grudgingly
Page 26 of 28
5.
6.
7.
Specific performance will not be ordered unless the K is definite enough to form the basis of a clear order
Specific performance can be a partial remedy
Π who seeks specific performance must render the return performance to the Δ
III. INJUNCTIONS
1.
2.
3.
4.
A ct order prohibiting a Δ from doing some particular act
R(2)§367 takes the position that injunc relief is approp if, but only if, the restrained engagement would’ve been for a competitor of the Π
Essential to the granting of injunc relief is a showing that the svcs to be performed were “unique” (ie athletes, entertainers, certain e’ees)
Drawbacks:
(1) Prevents the breaching party from employing her talents & skills as she desire & affects her ability to earn a livelihood
(2) If subsequent contracting party was unaware of that breaching party was breaching another K, an injunction interferes w/ its
legitimate K
(3) Aggrieved Π seeks injunction out of spite rather than from a genuine desire to encourage repentance
LIQUIDATED DAMAGES
-
I.
-
GENERAL
1.
2.
3.
4.
5.
A liquidated damages provision is a term in a K under which the parties agree that in the event of a breach by one
of them, the breacher will pay damages in a specified sum or in accordance w/ a prescribed formula.
It has the effect of settling in advance what damages will be due in the event of a breach
Π’s recovery is limited to the amount agreed, even if the breach causes the Π gtr loss than that provided
While it makes it easier and more efficient to obtain relief if a breach occurs (particularly if it involves a speculative venture), you’re still
dealing w/ a forecast of probable loss. The forecast of damage can be very diff from the loss that ultimately results from a breach
II. LIQUIDATED DAMAGES V. PENALTIES
1.
2.
If the liquidated damages are designed more to penalize a breaching party than to discourage a breach, cts will refuse to enforce the
provision
Cts will not enforce the provision but will instead void it as a penalty unless the amount it fixes as damages is reasonable in light of
anticipated or actual harm caused by the breach
Page 27 of 28
Questions to ask when answering an essay question:
•Was there a contract? - offer (invitation or offer? Definite terms?); acceptance.
•Does it meet formalities? - consideration; statute of frauds.
•Is it enforceable?
•Are there defenses?
•Was there a breach?
•Damages?
•If not successful on a breach claim, can you argue for unjust enrichment?
Performance of a Contract






November is a tough month for you. Take it one day at a time. Keep moving ahead.
Work diligently, little by little.
Begin reviewing material from the beginning of the semester and try to begin putting the “big picture” together.
Take practice exams.
Ask questions about things you don’t understand.
Take a look at your book . . . You’ve already read 750 pages of material! Amazing!!! You should be proud of yourselves!
 I – Issue – (Do an IRAC for every issue)
 R – Rule – the black letter law
 A – Analysis
 Side one rule to facts
 Side one policy
 Side two rule to facts
 Side two policy
 Conclusion – least important item
Page 28 of 28